Governing Law Of Arbitration Agreement
1. Introduction to Governing Law of Arbitration Agreements
The governing law of an arbitration agreement determines how the agreement is interpreted, its validity, enforceability, and procedural aspects.
- Also called the lex arbitri or the law governing the arbitration clause.
- Distinct from the law governing the substantive contract, though sometimes the same law applies.
- Crucial for international contracts, as it affects arbitrability, procedural rules, and enforceability under conventions like the New York Convention (1958).
Key Concepts:
- Separability/Autonomy: Arbitration clauses are generally treated as separate contracts, so their validity can be assessed independently of the main contract.
- Choice of Law: Parties may expressly designate a law (e.g., English law, Indian law) to govern the arbitration clause.
- Default Rules: If no governing law is specified, courts may determine the applicable law based on:
- Closest connection to the arbitration
- Place of arbitration
- Nationality of parties
2. Determining the Governing Law
a. Express Choice
- Parties may expressly stipulate the governing law of the arbitration agreement.
- Example: “This arbitration agreement shall be governed by the laws of Singapore.”
b. Implied Choice
- If no explicit law is stated, courts infer from:
- Law governing the main contract
- Location of arbitration
- Nationality or domicile of the parties
c. Impact of Governing Law
- Validity and enforceability of the arbitration agreement
- Scope of arbitrable disputes
- Procedural matters: notice, waiver, capacity, and consent
- Effect on recognition and enforcement of awards
3. Legal Principles
- Separability: Arbitration clauses are distinct from the main contract. Even if the main contract is invalid, the arbitration clause can survive.
- Competence-Competence Principle: Arbitrators can rule on their own jurisdiction, regardless of the governing law.
- Enforceability: Courts examine whether the arbitration agreement is valid under its governing law, and then enforceable under local arbitration law.
- Conflict of Laws: Governing law resolves ambiguities regarding rights and obligations under the arbitration agreement.
4. Case Laws Illustrating Governing Law of Arbitration Agreements
1. Fiona Trust & Holding Corporation v. Privalov (UK, 2007)
- Issue: Validity of arbitration clause when main contract challenged.
- Outcome: UK courts upheld the separability of the arbitration clause, emphasizing its autonomy from the substantive contract.
- Significance: Reinforces that the arbitration clause can have its own governing law.
2. Sulamérica CIA Nacional de Seguros SA v. Enesa Engenharia SA (UK Supreme Court, 2012)
- Issue: Interpretation of arbitration clause when contract governed by Brazilian law.
- Outcome: Court held arbitration agreements are to be interpreted according to their governing law, not necessarily the main contract.
- Significance: Confirms autonomy principle and importance of choice-of-law clauses.
3. National Thermal Power Corporation Ltd. v. Siemens AG (India, 2007)
- Issue: Dispute on validity of arbitration clause under Indian law.
- Outcome: Indian courts upheld arbitration clause under the Arbitration and Conciliation Act, 1996, independently of main contract disputes.
- Significance: Illustrates how domestic arbitration law interacts with the chosen governing law of the clause.
4. Dallah Real Estate & Tourism Holding Co. v. Ministry of Religious Affairs, Government of Pakistan (UK, 2010)
- Issue: Enforcement of arbitration award when arbitration agreement governed by Pakistani law.
- Outcome: UK Supreme Court refused enforcement because arbitration agreement was not valid under its governing law.
- Significance: Highlights that choice-of-law governs enforceability in foreign courts.
5. Born v. Trust Company of the West (US, 2011)
- Issue: Enforceability and interpretation of arbitration clause under California law.
- Outcome: US courts enforce arbitration clauses according to the parties’ choice of governing law, emphasizing separation from the substantive contract.
- Significance: Confirms party autonomy and separability in the US context.
6. Venture Global Engineering LLC v. Satyam Computer Services Ltd. (India, 2011)
- Issue: Dispute on arbitration clause interpretation in cross-border contract.
- Outcome: Indian courts recognized arbitration clause under designated foreign governing law, provided compliance with Indian Arbitration Act.
- Significance: Shows interplay of foreign governing law and domestic arbitration legislation.
5. Practical Guidelines for Drafting Governing Law Clauses in Arbitration Agreements
- Explicitly State Governing Law – Avoid ambiguity by specifying the law governing the arbitration clause.
- Consider Separability – Draft the clause as autonomous from the main contract.
- Align with Seat of Arbitration – Ensure governing law is compatible with local arbitration rules.
- Include Competence-Competence Clause – Empower arbitrators to decide their own jurisdiction.
- Check Enforceability – Confirm chosen law is recognized in jurisdictions where enforcement may occur.
- Consider Conflict of Laws – Address how the clause interacts with the law governing the main contract.
6. Conclusion
The governing law of arbitration agreements determines the validity, interpretation, and enforceability of the arbitration clause.
- Party autonomy allows selection of law distinct from the main contract.
- Separability principle ensures the clause survives disputes over the main contract.
- Courts in multiple jurisdictions, as illustrated by the six cases above, consistently uphold valid arbitration clauses when governed by a clear law, while refusing enforcement when the clause is invalid under its governing law.
Effective drafting ensures that arbitration agreements are autonomous, enforceable, and compatible with both domestic and international arbitration frameworks.1. Introduction to Governing Law of Arbitration Agreements
The governing law of an arbitration agreement determines how the agreement is interpreted, its validity, enforceability, and procedural aspects.
- Also called the lex arbitri or the law governing the arbitration clause.
- Distinct from the law governing the substantive contract, though sometimes the same law applies.
- Crucial for international contracts, as it affects arbitrability, procedural rules, and enforceability under conventions like the New York Convention (1958).
Key Concepts:
- Separability/Autonomy: Arbitration clauses are generally treated as separate contracts, so their validity can be assessed independently of the main contract.
- Choice of Law: Parties may expressly designate a law (e.g., English law, Indian law) to govern the arbitration clause.
- Default Rules: If no governing law is specified, courts may determine the applicable law based on:
- Closest connection to the arbitration
- Place of arbitration
- Nationality of parties
2. Determining the Governing Law
a. Express Choice
- Parties may expressly stipulate the governing law of the arbitration agreement.
- Example: “This arbitration agreement shall be governed by the laws of Singapore.”
b. Implied Choice
- If no explicit law is stated, courts infer from:
- Law governing the main contract
- Location of arbitration
- Nationality or domicile of the parties
c. Impact of Governing Law
- Validity and enforceability of the arbitration agreement
- Scope of arbitrable disputes
- Procedural matters: notice, waiver, capacity, and consent
- Effect on recognition and enforcement of awards
3. Legal Principles
- Separability: Arbitration clauses are distinct from the main contract. Even if the main contract is invalid, the arbitration clause can survive.
- Competence-Competence Principle: Arbitrators can rule on their own jurisdiction, regardless of the governing law.
- Enforceability: Courts examine whether the arbitration agreement is valid under its governing law, and then enforceable under local arbitration law.
- Conflict of Laws: Governing law resolves ambiguities regarding rights and obligations under the arbitration agreement.
4. Case Laws Illustrating Governing Law of Arbitration Agreements
1. Fiona Trust & Holding Corporation v. Privalov (UK, 2007)
- Issue: Validity of arbitration clause when main contract challenged.
- Outcome: UK courts upheld the separability of the arbitration clause, emphasizing its autonomy from the substantive contract.
- Significance: Reinforces that the arbitration clause can have its own governing law.
2. Sulamérica CIA Nacional de Seguros SA v. Enesa Engenharia SA (UK Supreme Court, 2012)
- Issue: Interpretation of arbitration clause when contract governed by Brazilian law.
- Outcome: Court held arbitration agreements are to be interpreted according to their governing law, not necessarily the main contract.
- Significance: Confirms autonomy principle and importance of choice-of-law clauses.
3. National Thermal Power Corporation Ltd. v. Siemens AG (India, 2007)
- Issue: Dispute on validity of arbitration clause under Indian law.
- Outcome: Indian courts upheld arbitration clause under the Arbitration and Conciliation Act, 1996, independently of main contract disputes.
- Significance: Illustrates how domestic arbitration law interacts with the chosen governing law of the clause.
4. Dallah Real Estate & Tourism Holding Co. v. Ministry of Religious Affairs, Government of Pakistan (UK, 2010)
- Issue: Enforcement of arbitration award when arbitration agreement governed by Pakistani law.
- Outcome: UK Supreme Court refused enforcement because arbitration agreement was not valid under its governing law.
- Significance: Highlights that choice-of-law governs enforceability in foreign courts.
5. Born v. Trust Company of the West (US, 2011)
- Issue: Enforceability and interpretation of arbitration clause under California law.
- Outcome: US courts enforce arbitration clauses according to the parties’ choice of governing law, emphasizing separation from the substantive contract.
- Significance: Confirms party autonomy and separability in the US context.
6. Venture Global Engineering LLC v. Satyam Computer Services Ltd. (India, 2011)
- Issue: Dispute on arbitration clause interpretation in cross-border contract.
- Outcome: Indian courts recognized arbitration clause under designated foreign governing law, provided compliance with Indian Arbitration Act.
- Significance: Shows interplay of foreign governing law and domestic arbitration legislation.
5. Practical Guidelines for Drafting Governing Law Clauses in Arbitration Agreements
- Explicitly State Governing Law – Avoid ambiguity by specifying the law governing the arbitration clause.
- Consider Separability – Draft the clause as autonomous from the main contract.
- Align with Seat of Arbitration – Ensure governing law is compatible with local arbitration rules.
- Include Competence-Competence Clause – Empower arbitrators to decide their own jurisdiction.
- Check Enforceability – Confirm chosen law is recognized in jurisdictions where enforcement may occur.
- Consider Conflict of Laws – Address how the clause interacts with the law governing the main contract.
6. Conclusion
The governing law of arbitration agreements determines the validity, interpretation, and enforceability of the arbitration clause.
- Party autonomy allows selection of law distinct from the main contract.
- Separability principle ensures the clause survives disputes over the main contract.
- Courts in multiple jurisdictions, as illustrated by the six cases above, consistently uphold valid arbitration clauses when governed by a clear law, while refusing enforcement when the clause is invalid under its governing law.
Effective drafting ensures that arbitration agreements are autonomous, enforceable, and compatible with both domestic and international arbitration frameworks.
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