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Choice of Law Rules Applicable for International
Publication Arbitration Agreements
Asian International Dongdoo Choi
Arbitration Journal (*)
The unsettled choice of law issues for preliminary challenges to international arbitration
agreements not infrequently spark disputes over the disputes resolution mechanism. This
Organization article will examine the efficacy of the traditional choice of law rules widely used in leading
United Nations Commission jurisdictions covering popular arbitration seats to determine the law for substantive validity
on International Trade Law of arbitration agreements, i.e., the implied intent test and the closest connection test. Noting
these tests fail to produce consistent and predictable results, this study will suggest a
practical solution built on a faithful construction of the New York Convention. In addition, the
Bibliographic reference article will briefly discuss about the New York Convention's form requirements and the choice
of law rules applicable to formal validity of arbitration agreements under the UNCITRAL
Dongdoo Choi, 'Choice of Law Model Law.
Rules Applicable for
International Arbitration A Introduction
Agreements', Asian
International Arbitration An important preliminary question to international commercial arbitration is whether
Journal, (© Singapore there is a valid agreement to arbitrate. (1) This question frequently entails complex choice
International Arbitration of law issues primarily for two reasons: first, in practice, contracting parties often fail to
Centre (in co-operation with indicate the law specifically applicable to the arbitration agreements; second, the United
Kluwer Law International); Nations Convention on the Recognition and Enforcement of Foreign Arbitral Award (the
Kluwer Law International ‘Convention’) lacks specific guidance on what law to apply to this question at the
2015, Volume 11 Issue 2) pp. arbitration agreement enforcement stage.
105 - 115 P 105
P 106
After briefly discussing the presumptive validity of arbitration agreements falling under
the Convention and the spawning of complex choice of law issues, this article will examine
the choice of law rules applicable to substantive and formal validity challenges to
arbitration agreements at the pre-award stage under the Convention, in the absence of
effective party choice of law.

B Presumptive Validity of Arbitration Agreements


Contemporary international arbitration law favors enforcement of arbitration agreements.
Reflecting or evidencing this, the Convention prescribes the presumptive validity of
international arbitration agreements, providing that ‘[each] Contracting State shall
recognize an [arbitration] agreement …’ (2) and that ‘[the] court of a Contracting State …
shall … refer the parties to arbitration, unless it finds that the said agreement is null and
void, inoperative or incapable of being performed.’ (3) This is substantive and mandatory
international law that the Contracting States should follow unless the proviso applies. In
parallel, Article 8(1) of the UNCITRAL Model Law on International Commercial Arbitration as
amended in 2006 (the ‘Model Law’) requires that a court refer the parties to arbitration,
subject to the same exceptions as those of the Convention.

C Backgrounds for Complex Choice-of-Law Issues Occurring at the Pre-


Award Stage
Given the weight of party autonomy in arbitration, any party choice of law will be honored
by national courts and arbitral tribunals to the extent legally possible. In reality,
contracting parties often fail to indicate the law governing the arbitration agreement,
probably because they might have assumed that the law for the underlying contract
applies to all clauses of the contract including the arbitration clause. This supposition, if
not coupled with further indications of party intent, tends to be overridden by the
separability doctrine whereby the arbitration clause is presumed to be separate from the
underlying agreement. (4) Thus, arbitration clauses that do not have their own choice of
law would be deemed to be blank in terms of the parties' choice of law for the agreements
to arbitrate.
P 106
P 107
The salient silence of the Convention on the choice of law rules applicable at the pre-
award stage also contributes to this problem. It provides for a default rule under Article
V(1)(a) that the law of the arbitral seat may apply to the validity of the arbitration
agreement at the post-award enforcement stage. (5) That default rule under Article V does
not, by itself, extend to the pre-award stage, but neither does the Convention preclude the
default rule from applying at this stage.

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Consequently, challenges to the validity of arbitration agreements at the pre-award stage
in the absence of party choice have inevitably entailed choice of law issues at the pre-
award stage of arbitration.

D Choice of Law Applicable to Substantive Validity of Arbitration


Agreement
Article II(3) of the Convention requires that the national court compel arbitration ‘unless it
finds that the [arbitration] agreement is null and void, inoperative or incapable of being
performed.’ (6) Notably, this mandatory international law comes with no guidance on
choice of law rules to define what the proviso should mean. It is still ‘axiomatic that courts
must have some law to apply when initially determining whether the parties agreed to
arbitrate a particular dispute.’ (7) To determine ‘some law’ or the proper law for
substantive validity of arbitration agreements at the pre-award stage, the party intent test
and/or the closest connection test are commonly conducted in court.

1 Party Intent Test


In arbitration, parties' intent is paramount in selecting the proper law for agreements to
arbitrate. In most cases, parties choose the body of contract law that will apply to the
underlying contract; therefore, one must consider whether the parties intended this law to
apply to validity challenges to the arbitration clause. The separability doctrine considers
P 107 the clause to be free from being governed by the general choice of law. In applying the
P 108 intent test, however, separability would become operative and relevant only when the
parties were aware of it at the time of concluding the contract. (8) If the parties were not
aware that the general choice of law would fail to reach the arbitration clause contained in
the underlying contract, they would have presumably assumed and intended that their
choice would apply to the arbitration agreement. (9) One could overcome this factual
assumption by a presumption that the parties know the intricacies of arbitration law and
choice of law and act accordingly; however, that might amount to a fiction that impedes a
full inquiry into party intent.
Alternatively, if one assumes that the parties are aware of the choice of law rule in Article
V(1)(a) of the Convention for post-award challenges, it might be inferred that the parties'
choice of a seat of arbitration reflects an intent to choose that State's law to apply to
P 108 preliminary challenges to the agreement to arbitrate, as well as to the award in later
P 109 proceedings. (10) This inference has the benefit of finding a party choice of law even if
the court presumes the parties' knowledge at the time of executing the contract that their
choice of law for the underlying contract would fail to apply to the arbitration agreement.
On the other hand, parties savvy enough to know the default choice of law rule under
Article V(1)(a) of the Convention and its potential effect on the choice of law presumably
would not leave this matter to inference but would specifically choose the law that will
apply to preliminary challenges to the arbitration agreement.
To recapitulate, these two approaches to giving effect to party intent rest on factual
assumptions that may be questionable in some cases. The more sensible inference in most
cases, however, would be that the parties intended their choice of law for the contract to
apply to all provisions of the contract, including the arbitration clause contained in the
contract. This inference could be overcome, of course, if preliminary negotiations or other
P 109 evidence showed that the parties were aware of the separable nature of the arbitration
P 110 clause or the default rule in Article V(1)(a) of the Convention and intended to refrain
from choosing the law for the arbitration clause, or merely intended the law of the seat of
arbitration to apply.

2 The Closest and Most Real Connection Test


In the absence of effective party choice of law, courts may also rely on its conflicts rules to
determine the law applicable to substantive challenges to arbitration agreements. (11)
While divergent conflicts rules might exist in different jurisdictions, this section will discuss
the common law approach in UK and US jurisdictions where courts would apply the law of a
state deemed to have ‘the closest and most real connection’ with the arbitration
agreement in question for its validity issues. (12) Specifically, the law for the underlying
agreement has a nontrivial level of connection to the agreement to arbitrate because that
law will govern the subject matters of the disputes for arbitration. The law of the seat also
has a close connection to the arbitration agreement because the seat is the place of
performance of the arbitration agreement. Furthermore, the seat country may exercise its
supervisory power over procedural aspects of arbitration proceedings taking place within
its territory through its national arbitration act. (13)
One might say that this test would tips away from the law of the underlying contract
because the separability doctrine is considered to set up a barrier between the law of the
underlying contract and the enclosed arbitration agreement. However, applying the
separability rule absent validity issues to the underlying agreement would be not only
unwarranted and but also beyond the purpose of the rule because this rule is to insulate
the arbitration agreement from validity issues of the underlying contract in order to
preserve the jurisdiction of the arbitral tribunal. (14) In addition, the significance of
P 110 procedural aspects of the arbitration agreement could militates against the law selected
P 111
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P 111 for the underlying agreement in favor of the law of the seat as the latter plays critical
roles to ensure due process and fairness of the arbitration proceedings.
The closest connection test does not seem to generally favor the law of the seat, either. In
particular, the supervisory function of the law of the seat in arbitration, which constitutes a
primary nexus between arbitration agreements and the law, is not dispositive because this
function becomes only relevant once and after the immediate validity question of
arbitration agreements is cleared. In other words, the immediate issue – whether the
arbitration agreement is valid to be enforced – is not that closely connected to the law of
the seat. Furthermore, there are contracts the domicile of the performance or the subject
matter of which is overwhelmingly important. For example, the governing law of contracts
involving real estate properties could be considered organically connected to the entire
contracts including the arbitration agreement. Indiscriminate application of the law of the
seat in this type of case could thus be viewed sometimes as defying logic and analysis.
A tricky question hence ensues as to how to objectively measure closeness based on each
competing connecting factor for prioritisation purposes. Without objectivity in its
measurement of closeness, this test would be nothing but ‘abstract assessment of
closeness and significance [that] are arbitrary and unprincipled’ (15) and would resultantly
fail to suggest meaningful guidance on ‘some law’ that courts need to determine the
substantive validity of international arbitration agreements.

3 Article II(3) Capable of Permitting the Forum to Apply Its National Law in
Internationally Neutral Manner
A faithful construction of the Convention may present a practical solution to the choice of
law issues at the arbitration agreement enforcement stage in the absence of any effective
party choice. As noted in section II above, the forum court must compel arbitration under
Article II(3) of the Convention unless it finds that the arbitration agreement at issue is null
and void. This is a mandatory rule of law for those nations (16) that have ratified the
Convention. The question being prompted is how to determine the scope and meaning of
‘null and void.’ Failing any indications on the party choice of law for this particular
question, instead of resorting to the traditional choice of law analysis, forum courts should
P 111 be able to refer to their national contract defenses law. In other words, the court may, as a
P 112 matter of fact and law, refer to its own contract law in interpreting the proviso of Article
II(3) of the Convention that has been ratified into its national law. This construction can be
corroborated by the fact the drafters of the Convention chose not to include choice of law
rules for the Article II stage, unlike those for the Article V stage.
Application of national contract law (and arguably any party choice of law) in this context
should be, however, subject to a manner and extent that is internationally neutral and
acceptable. In other words, locally idiosyncratic rules of contract law should not be
applicable to invalidate parties' agreement to arbitrate; instead, courts should only apply
internationally neutral and recognised rules of contract validity. (17) The fact that Article II
of the Convention prescribes no choice of law rules warrants and even necessitates this
interpretation. In addition, the Model Law, having a provision (18) almost identical with
Article II(3) of the Convention, also supports this restraint because in applying and
interpreting the Law, due regard must be had ‘to its international origin and to the need to
promote uniformity’ (19) . Likewise, US case law (20) prevalently proceeds ‘neutrally on an
international scale’ (21) ruling that ‘it is … internationally recognized defenses to contract
formation … which makes a valid agreement to arbitrate … unenforceable under Article II,
section 3 of the Convention.’ (22)
In short, as a weighty commentary puts it, Article II requires ‘the application of generally-
applicable, non-discriminatory rules of contract law [of the forum court] to issues of
P 112 substantive validity [of international arbitration agreements].’ (23) This approach would
P 113 well serve policy considerations such as consistency and uniformity of choice of law
applicable at the Article II stage as well as the pro-arbitration policy of the Convention.

E Choice of Law Applicable to Formal Validity of Arbitration Agreement


1 The Convention's Form Rule Being a Maximum Rule
Under the Convention, a written record, whether contained in a contract, ‘signed by the
parties or contained in an exchange of letters or telegrams,’ that evidences the parties'
consent to arbitrate is the required formality for an international arbitration agreement to
be protected with the presumptive validity. (24) Arbitration agreements satisfying this rule
will not raise choice of law issues for formal validity.
Markedly, the Convention's form requirement is a maximum rule for several reasons. First,
the Convention permits that recourse may be made to a less demanding form rule to
recognise an award even if the award is based on an arbitration agreement whose form
does not meet the Article II requirement. According to Article VII(1) of the Convention, it
may not ‘deprive any interested party of any right he may have to avail himself of an
arbitral award … to the extent allowed by the law … of the country where such award is
sought to be relied upon.’ (25) One example of a less demanding standard appears in
Article 7 Option II of the Model Law, which, for example, validates an arbitration
agreement if it is alleged in a pleading and not denied by the other party.

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Second, Article II(2)'s usage of verb ‘include’ suggests that its form requirement is more of
an illustration than an unqualified rule for strict compliance. (26) Finally, the liberal
approaches to the form requirement under the Model Law support that the Convention
imposes a maximum – not minimum – form requirement. Perhaps in reflection of the
P 113 contemporary communication methods such as email that did not exist when the
P 114 Convention was made in 1958, the Model Law as amended in 2006 provides two options
for Article 7 (form of arbitration agreement): Option I permits recordings ‘in any form,
whether or not … orally, by conduct, or by other means’; Option II even dispenses with any
formal requirements.
In sum, arbitration agreements that do not meet the Convention's maximum rule may still
be enforceable under local law in some States. Accordingly, some arbitration clauses may
be challenged on the basis of their lack of formal validity, with consequent issues about
choice of law.

2 National Form Rule Applicable Only to Arbitration within Its Territory


When a party challenges the formal validity of an arbitration agreement under standards
less demanding than the Convention's maximum rule, choice of law would be relatively
straightforward if all interested jurisdictions have adopted the Model Law. Unlike for the
substantive validity issues, courts can find guidance on choice of law issues for formal
validity in the Model Law and in national legislation of relevant jurisdictions having
adopted its approach. With regard to its jurisdictional limit, the Model Law includes Article
7 (form of arbitration agreement) in the group of provisions that apply ‘only if the place of
arbitration is in the territory of this State.’ (27) This legislative direction is unequivocal in
terms of the jurisdictional limit, which makes the law of the seat country the only possible
choice of law for formal validity issues. Assuming that all relevant countries are Model Law
jurisdictions, the forum court may not apply its law (even with its relaxed standards for
formal validity) if the seat is in a foreign jurisdiction; nor can it apply any other foreign
national law except for the law of the seat to formal validity issues.
Finally, given the contemporary liberal approaches to the form requirement, most of
recordings in any form that show the parties' consent to arbitrate would satisfy the form
requirement under most national arbitration statutes. This would be particularly true in
practice because most popular arbitral seats frequently selected by contracting parties
have arbitration friendly policies including liberalised form requirements.

F Conclusion
Divergent approaches exist in different jurisdictions with regard to the choice of law rules
for arbitration agreements. The mandates of Article II(3) of the Convention that courts
P 114 apply rules of validity for arbitration agreements in a manner internationally acceptable
P 115 and neutral will result in lit le conflicts of laws that need to be reconciled by the choice
of law process. Nonetheless, courts need ‘some law’ to apply to challenges to the validity
of arbitration agreements. The party intent test, if analytically correctly conducted, will be
largely susceptible of parties' awareness of the separability presumption. (28) The closest
connection test seems to fail to provide meaningful guidance due to the difficulties
associated with objectively measuring closeness of competing connecting factors. Rather
than go through these choice of law tests that are not capable of producing consistent and
predictable results, application of the forum law in an internationally neutral manner
would best attain consistency and predictability of choice of law for substantive validity of
arbitration agreements as well as the policy of the Convention to favor their enforcement.
This application is supported and justified by the Convention's salient silence on the
choice of law rules for the arbitration agreement enforcement stage in interpreting the
language of Article II of the Convention that is part of the national law of the forum country.
The Convention's form requirements are a maximum rule. Arbitration agreements in forms
noncompliant under the Convention will need to meet a less demanding national rule
applicable to the agreements. In Model Law jurisdictions, the form rules under national
arbitration legislation are applicable only to agreements to arbitrate within their territory.
Assuming all interested jurisdictions follow the Model Law, the court seized of formal
validity challenges will, therefore, find the law of the seat the only plausible choice of law
for form questions.
P 115

References
*) Dongdoo Choi: JD (Arizona State University)/LLM (New York University); Member of the
State Bar of California; Senior international legal counsel in Samsung Electro-
Mechanics in Korea. This article owes a lot to Professor Charles Calleros' feedback. The
author also thanks Friven Yeoh for his comments. The author can be reached at
dongdoo.choi@gmail.com.

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1) Choice of law issues associated with arbitrability of a dispute, another important
preliminary question for enforcement of arbitration agreements, is not addressed in
this article.
2) New York Convention Art. II(1) (emphasis added).
3) New York Convention Art. II(3) (emphasis added).
4) See generally Janet A Rosen, Note, Arbitration Under Private International Law: The
Doctrines of Separability and Competence de la Competence, 17 Fordham L Rev 559
(1993), available at <http://ir.lawnet.fordham.edu/cgi/viewcontent.cgi?
article=1383&context=ilj> (last visited 8 January 2015).
5) New York Convention Art V(1)(a) provides that the validity issues at the stage of
enforcing the arbitral award are examined ‘under the law of the country where the
award was made’ failing any indication of party choice.
6) New York Convention Art II(3).
7) Kamaya Co Ltd v Am Prop Consultants, Ltd 91 Wash App, 713–14 (Wash Ct App) (emphasis
added).
8) In a probe into parties' subjective intent on what law to apply to the arbitration
agreement, the role and effect of the separability doctrine should be limited. This
presumptive doctrine is intimately connected to cases where validity issues of the
underlying agreement spill over to and thus contaminate the validity of the arbitration
agreement. The Model Law has adopted this doctrine under Article 16(1) only for the
purpose that the arbitral tribunal can rule on its own jurisdiction including any
objections with respect to the existence or validity of the arbitration agreement by
treating an arbitration clause as an agreement independent of the other terms of the
contract. The trace of the separability doctrine is not found elsewhere in the Model
Law. Applying this presumptive rule, without more on factual support for party
awareness of this rule, to an inquiry into the parties' subjective intent would be
beyond the purpose of this rule.
9) In the same context, the English Court of Appeal in SulAmerica Cia National De Seguros
SA and others v Enesa Engenharia SA [2012] 1 Lloyd's Rep 671 presumed that in the
absence of any indication to the contrary, parties intended the arbitration agreement
to be governed by the same system of law as the substantive contract. The Court,
however, found that two factors present in the case may together negate the
presumption in favor of the law for the contract – ie, i) the party choice of the seat of
the arbitration that is different from the country of the law for the Policy; and ii) the
potential negative consequences of applying the law for the underlying contract to the
arbitration agreement.
The Court viewed in paragraph [29] that the choice of the seat (here, London) ‘tends to
suggest that the parties intended the law of the seat to govern all aspects of the
arbitration law,’ particularly in light of the fact that the English Arbitration Act 1996
governs matters concerning the formal validity of arbitration agreements. Greater
weight seems to have been placed on the second factor. Mindful of the claim made by
Enesa (who resisted arbitration) that the arbitration agreement would not be honored
under the Brazilian law, the Court reasoned that the parties would not have selected a
system of law that could derail their agreement to arbitrate.

10) Contrary to the SulAmerica presumption favoring the general choice of law, the
Singapore High Court in FirstLink Investment Corp Ltd v. GT Payment Pte Ltd and others
[2014] SGHCR 12 presumed that parties would have wanted the arbitration agreement
to be governed by the same system of law as the law of the seat “to ensure consistency
between the law and the procedure of determining the validity of the arbitration
agreement” and held that absent indications to the contrary, ‘parties have impliedly
chosen the law of the seat as the proper law to govern the arbitration agreement, in a
direct competition between the chosen substantive law and the law of the chosen seat
of arbitration.’ See paragraph [15].
In arriving at its holding, FirstLink placed particular importance on: 1) the probable
state of mind of the parties ‘at the time of disputes’; and 2) the party choice of the
seat. This focus can be viewed as debatable. First, whereas the issue is what the
parties' state of mind ‘at the time of executing the contract’ would be, the focus is on
what they would think ‘at the time of disputes.’ Further, one might consider that the
Court-created presumption that the parties' desire for neutrality takes precedence in
a search for the party intent on the proper law for the arbitration agreement could
amount to a contrivance in order to afford preference to the law of the seat. Second,
the Court heavily relied on Article (V) (1)(a) of the Convention and Article 34(2)(a)(i) of
the Model Law to infer that the choice of seat indicates the implied party choice of the
law for preliminary challenges to the arbitration agreement. These sections, however,
concern post award challenges only. The stark contrast that the Convention's silence on
the choice of law rules at the Article (II) stage makes with the specific rules provided
for at the Article (V) stage can be interpreted in a way to undercut the basis for the
Court to rely on Article (V)(1)(a) in finding in favor of the law of the seat for the
arbitration agreement. In addition, this finding would lose ground unless there is
factual evidence of the parties' awareness, at the time of executing contract, of such
sections and that their general choice of law would not reach the arbitration
agreement.

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11) See for example, Art VI(2)(c) of European Convention on International Commercial
Arbitration (requiring courts to apply “the competent law by virtue of the rules of
conflict of the court seized of the disputes” to arbitration agreements).
12) This term, the closest and most real connection test, is commonly used in English law
and would be an equivalent to the ‘most significant relationship’ test used in the US
jurisdictions as reflected in Restatement (Second) Conflict of Laws §188.
13) SulAmerica, supra at 9 presents a discussion relevant to this matter. In its decision, the
Court exclusively focused on the nature and purpose of the arbitration agreement, ie,
an agreement on dispute resolution mechanism, and stated in paragraph [32] that the
agreement to arbitrate ‘has its closest and most real connection with the law of the
place whether the arbitration is to be held and which will exercise the supporting and
supervisory jurisdiction.’
14) See footnote 9 above for more on this matter.
15) Gary B Born, International Commercial Arbitration §4.04[A][2][f] (2nd Ed, 2014).
16) For a list of adopting States, refer to:
<http://www.uncitral.org/uncitral/en/uncitral_texts/arbitration/1985Model_arbitratio
n_status.html>.
17) Under this mandate of Article II(3) of the Convention, even if different systems of law
are applied to arbitration agreements at pre- and post-award stages, no meaningfully
different outcomes would result. This analysis could considerably weaken a policy
based argument for the default rule under Article V(1) that the law of the seat should
also apply, by default, at the pre-award stage for the sake of uniformity and
predictability.
18) Model Law Art 8(1).
19) Model Law Art 2(A)1.
20) US case law tends to prevalently follow this approach. See eg, Genesco, Inc v T Kakiuchi
& Co 815 F2d 840, 845 (2d Cir NY 1987) (noting that ‘national substantive law [governs]
questions of the validity and the enforceability of arbitration agreements’); Rhone
Mediterranee Compagnia Francese v Lauro 712 F2d 50 (3rd Cir 1983) (noting that the law
implicitly referenced by Article II section 3 is the federal common law concerning
validity questions of an international arbitration agreement); and Chloe Z Fishing Co
supra, at 8.
21) Ledee v Ceramiche Ragno 684 F2d 184, 187 (1st Cir PR 1982); see Chloe Z Fishing Co v
Odyssey Re (London) Ltd 109 F Supp 2d 1236, 1258–59 (SD Cal 2000).
22) Chloe Z Fishing Co v Odyssey Re (London) Ltd 109 F Supp 2d 1236, 1258–59 (SD Cal 2000).
23) Gary B Born, International Commercial Arbitration §4.04[A][1][b][i] (2nd Ed, 2014).
24) New York Convention Art II(2); see also id Art II(1).
25) This remedy would not be available for those whose application for recognition or
enforcement of awards was denied because of substantive invalidity of the arbitration
agreement. The form rule under the Convention is a maximum rule, allowing an
otherwise formally vulnerable agreement to be redeemed by a less demanding rule, if
applicable. On the other hand, the substantive validity rule is mandatory in nature,
meaning that such redemption is not available for arbitration agreements that are
considered not valid under the party choice of law or, failing any indication of it, the
law of the seat.
26) ‘The term “agreement in writing” shall include an arbitrable clause in a contract …
signed by the parties …’ New York Convention Art II(2) (emphasis added).
27) Model Law Art 1(2).
28) On a final note, the implied intent test tends to become unnecessarily complicated
due to the indiscriminate invocation of the separability doctrine beyond its statutory
scope and purpose set out in the Model Law legislation. The question is whether
separability can and should apply purely for the purpose of identifying the proper law
for embedded arbitration agreements. In most Model Law jurisdictions, the national
arbitration legislation would follow Article 16(1) of the Model Law providing that
separability is invoked for the purpose of insulating the arbitration agreement from
the validity issues of the underlying agreement to preserve the jurisdiction of the
arbitral tribunal to rule on its own jurisdiction. If separability stays within the ambit of
this statutory purpose, international arbitration may spare itself unnecessary litigation
processes regarding choice of law issues to a great extent and provide for a better and
more efficient disputes resolution method.

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