Critically discuss the legal framework that can apply to any particular international
arbitration.
Regarding the layer cake of laws, first is the substantive law. This is the proper law of the
contract, the applicable law or the governing law. It determines the parties’ legal rights and
obligations, affects their cause of action, remedies, damages, limitation defences, quantum
and burden of proof.
Second is the procedural law/lex arbitri. It affects the conduct of arbitration in terms
of document requests, tribunal constitution, witness examinations, curial support from the
courts in terms of interlocutory relief and challenging the tribunal’s award.
Third is the governing law of the arbitration agreement. It governs its existence,
validity and scope.
Last is the law recognising and enforcing the award. When the party seeks to enforce
the award outside the seat of arbitration in another jurisdiction, the latter’s law becomes
relevant.
Explain the choices and factors parties can make when selecting the substantive law.
Importance of substantive law
The substantive law is important because it governs the contract’s interpretation and validity,
the parties’ rights and obligations. Some contracts are very short and contain the bare
minimum to create a validly binding agreement. Other contracts are very long and may
exhaustively set out the parties’ rights and obligations. For example, a contract may include
‘The governing law of the contract shall be the substantive law of England and Wales’. The
advantages of the substantive law are that it has a ‘legal, practical and psychological
influence on every arbitration’1. In fact, according to a survey2, most businesses prioritised
the selection of the substantive law (51%) over the choice of seat (9%) and institutional rules
(12%). However, according to 73 awards and 20 arbitrators’ interviews, the following
findings were revealed3. First, the tribunals tend to follow a consistent interpretive approach
disregarding the substantive law. They emphasise contractual text in its commercial context
and invoke the parties’ subjective intentions by submitting extrinsic evidence of it. Second,
40% of the awards do not mention rules of interpretation towards its meanings.
According to Professor Kappa4, the parties will choose a law where the subject matter
was to be carried out in locations such as construction. Also, it will fall on either the parties’
nationality where they have different nationalities or a third unrelated jurisdiction. He also
comments that it is more important than the seat because the seat is only relevant when
interim relief is sought from a national court. Furthermore, substantive law is applied in all
arbitrations as it directly affects the merits, the parties’ rights, enhances their expectations on
the reliability of the contract, and determines whether the parties will get what they have
bargained for in the contracts.
1
Lew, Mistelis & Kröll, Comparative International Commercial Arbitration (Kluwer Law International 2003),
Chapter 17, page 1.
2
2010 International Arbitration Survey: Choices in International Arbitration (Queen Mary)
3
Karton, J. (2015) ‘The Arbitral Role in Contractual Interpretation’, Journal of International Dispute Settlement,
Volume 6(1), pp. 4–41.
4
Professor Phillip Kappa, Partner, White & Case, London (Engineering & Construction), Conference of
Arbitration – Does the Seat Matter? (Saint Petersburg, 16 May 2013).
arbitration.
Regarding the layer cake of laws, first is the substantive law. This is the proper law of the
contract, the applicable law or the governing law. It determines the parties’ legal rights and
obligations, affects their cause of action, remedies, damages, limitation defences, quantum
and burden of proof.
Second is the procedural law/lex arbitri. It affects the conduct of arbitration in terms
of document requests, tribunal constitution, witness examinations, curial support from the
courts in terms of interlocutory relief and challenging the tribunal’s award.
Third is the governing law of the arbitration agreement. It governs its existence,
validity and scope.
Last is the law recognising and enforcing the award. When the party seeks to enforce
the award outside the seat of arbitration in another jurisdiction, the latter’s law becomes
relevant.
Explain the choices and factors parties can make when selecting the substantive law.
Importance of substantive law
The substantive law is important because it governs the contract’s interpretation and validity,
the parties’ rights and obligations. Some contracts are very short and contain the bare
minimum to create a validly binding agreement. Other contracts are very long and may
exhaustively set out the parties’ rights and obligations. For example, a contract may include
‘The governing law of the contract shall be the substantive law of England and Wales’. The
advantages of the substantive law are that it has a ‘legal, practical and psychological
influence on every arbitration’1. In fact, according to a survey2, most businesses prioritised
the selection of the substantive law (51%) over the choice of seat (9%) and institutional rules
(12%). However, according to 73 awards and 20 arbitrators’ interviews, the following
findings were revealed3. First, the tribunals tend to follow a consistent interpretive approach
disregarding the substantive law. They emphasise contractual text in its commercial context
and invoke the parties’ subjective intentions by submitting extrinsic evidence of it. Second,
40% of the awards do not mention rules of interpretation towards its meanings.
According to Professor Kappa4, the parties will choose a law where the subject matter
was to be carried out in locations such as construction. Also, it will fall on either the parties’
nationality where they have different nationalities or a third unrelated jurisdiction. He also
comments that it is more important than the seat because the seat is only relevant when
interim relief is sought from a national court. Furthermore, substantive law is applied in all
arbitrations as it directly affects the merits, the parties’ rights, enhances their expectations on
the reliability of the contract, and determines whether the parties will get what they have
bargained for in the contracts.
1
Lew, Mistelis & Kröll, Comparative International Commercial Arbitration (Kluwer Law International 2003),
Chapter 17, page 1.
2
2010 International Arbitration Survey: Choices in International Arbitration (Queen Mary)
3
Karton, J. (2015) ‘The Arbitral Role in Contractual Interpretation’, Journal of International Dispute Settlement,
Volume 6(1), pp. 4–41.
4
Professor Phillip Kappa, Partner, White & Case, London (Engineering & Construction), Conference of
Arbitration – Does the Seat Matter? (Saint Petersburg, 16 May 2013).
