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Choice of Law Rules
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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.
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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.
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.
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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.
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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