Getting to the Law Applicable to the Merits in International Arbitration and the Consequences of Getting It Wrong - Chapter 12 - Conflict of Laws in International Commercial Arbitration
Originially from Conflict of Laws in International Commercial Arbitration
There are numerous reasons why parties start proceedings in the courts of one State rather than in those of another. They range, as the case law also shows,2 from differences in procedures3 and applicable rules of evidence4 to variations in the efficacy and speed of judicial proceedings.5 Familiarity with a given system,6 the language to be used in a particular court,7 the court’s reputation for fairness (or home court bias),8 “the quality and ability of the judiciary and the legal profession,”9 the cost of court proceedings,10 and the ease of enforcement of the judgment11 may also influence the choice. Moreover, commentators have identified the “legal climate”12 as another reason for favoring the court of one State over that of another. Finally, differences in the conflict of laws rules may also affect the parties’ choice of forum.13
Once the parties have initiated proceedings in a particular court, the law of the forum may operate to limit the autonomy of the parties. In other words, once the parties have started court proceedings, a legal framework is imposed upon them which provides for certain rules with which they must necessarily comply and cannot opt out of.14 When parties opt for arbitral proceedings instead of court proceedings, there is also a legal framework – that for arbitration proceedings – but it is generally less restrictive15 and more flexible.16 The arbitration regime often allows parties to exercise autonomy in areas where the rules applicable in national courts do not permit party autonomy,17 such as that of procedure.18 Also, although the rules of conflict of laws applied both in national courts and in arbitration proceedings to determine the law applicable to the merits, i.e., the rights asserted by claimants and the defenses raised and counterclaims asserted by defendants,19 grant the parties broad autonomy in choosing the applicable rules20 (at least as regards contract disputes), the autonomy granted in arbitration appears to be even greater.21
But a simple reference to party autonomy does not solve the question of the law applicable to the merits of a dispute before arbitral tribunals.22 The issue of the law applicable in arbitral proceedings is more complex and requires a decision by the arbitrators themselves as part of the submission of the matter to them. Even when the parties have chosen the applicable law in the contract, that choice may raise issues that arbitrators will have to address that cannot be dealt with by simply applying the law chosen. When the parties have not chosen the law applicable to the merits, relevant arbitration laws and/or the arbitral rules will usually provide some direction to the arbitrators. Our chapter addresses both of these situations and offers some normative solutions for ascertaining the applicable law. We also explore the consequences of an erroneous choice of law decision by the arbitrators in the context of annulment and/or the recognition and enforcement of an award.