INTRODUCING ARBITRATION:

THE KEY CONCEPTS

Ajay Thomas
Arbitrator and Advocate
Arista Chambers

© Ajay Thomas 2017 0

 The Legal Matrix

Governing law of the Contract

(Proper law/Substantive law)

Law of the Arbitration Seat

(Lex arbitri/Curial law)
ARBITRATION
REGIME
Arbitration/Procedural Rules

Law of the Arbitration Agreement

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Governing Law of the Contract

 Law that would determine the rules that the Arbitral Tribunal
would follow to decide the substantive rights and obligations of
the parties.
 This is usually contained in a separate clause, and may be
negotiated and agreed to at the time of negotiating the arbitration
clause.
 Sample Clause: “The law governing the contract shall be
substantive law of [ ].”

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MCIA model clause

 Any dispute arising out of or in connection with this contract,

including any question regarding its existence, validity or
termination, shall be referred to and finally resolved by arbitration
in accordance with the Arbitration Rules of the Mumbai Centre
for International Arbitration (“MCIA Rules”), which rules are
deemed to be incorporated by reference in this clause.
 The seat of the arbitration shall be ________________.
 The Tribunal shall consist of [one/three] arbitrator(s).
 The language of the arbitration shall be ________________.
 The law governing this arbitration agreement shall be
________________.
 The law governing the contract shall be______________.

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Determining the Governing Law

Express Choice of the Parties

 General Rule - parties are free to stipulate system of law which is
to be applied.
 Failure to specify the substantive law will result in a lot of time
wasted and parties having to approach a court of law or the
tribunal (if appointed) to decide the issue.
 Arbitration & Conciliation Act (Section 28)
 MCIA Rules (Rule 24.1) - The Tribunal shall apply the law
and/or rules of law designated by the parties to the substance of
the dispute.

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Determining the Governing Law

Where no substantive law is chosen

 General Rule – the tribunal is given the freedom to determine the
law which it considers appropriate.
 Arbitration & Conciliation Act (Section 28.1.b(iii)) - The arbitral
tribunal shall apply the rules of law it considers to be appropriate
given all the circumstances surrounding the dispute.
 MCIA Rules (Rule 24.1) – Failing designation by the parties, the
Tribunal shall apply the law and/or rules of law which it
determines to be appropriate.

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Can you avoid reference to a national law?

 Ex aequo et bono or amiable compositeur

 By consent of the parties.
 Tribunal to take into account the terms of the contract and
trade usages.
 Arbitration and Conciliation Act (Section 28 (2): The
arbitral tribunal shall decide the dispute ex aequo et bono
or amiable compositeur only if the parties have expressly
authorised it to do so.
 MCIA Rules (Rule 24.2)

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‘Floating clauses’

 “The contract of carriage shall . . . in the option of the carrier to be

declared by him on the merchant's request be governed (i) either
by Iranian law (ii) or by German law (iii) or by English law . . . with
exclusive jurisdiction of the Courts in London . . .”
 Held: clause to be invalid in The Iran Vojdan [1984] 2 Lloyd’s Rep
380

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‘The Shari’ah’

 “This dispute shall be governed by the Laws of England except to

the extent of any conflict with Islamic Shari’ah, which shall prevail”
 Clause upheld in Sanghi Polyesters Ltd v The International
Investor [2000] 1 Lloyd’s Rep 480

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 Law of the arbitration seat

 Also called governing law of the arbitration, or lex arbitri, or law of

the situs, or curial law and at times (wrongly) procedural law.
 It flows automatically from the seat, and is not a matter of choice.
 May be different from the substantive law of the contract.
 Matters dealt with by the law of the seat:
 The arbitrability of disputes (actually non-procedural)
 The default appointment and challenge procedure
 The duties and powers of arbitrators
 The power of the court to assist, to order discovery, injunctions
 Judical review of awards

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 Seat of the arbitration

 In most arbitration regimes, the words ’place’ and ‘seat’ are used
interchangeably.
 It is the primary legal jurisdiction to which the arbitration is
attached.
 Influences the law governing the conduct of the arbitration.
 It decides which courts can have supervisory and supportive
jurisdiction of the arbitration.
 The court of the seat will have the power to set aside the award
 The law of the seat may enlarge the grounds on which a curial
court may set aside an award (e.g. ground of “patent illegality” in
India post ONGC v Saw Pipes)
 It determines the nationality of the award – enforcement under
the New York Convention
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Seat and Venue distinguished

 The word ‘seat’ refers to the legal place of arbitration (Legal

location)
 It is not necessarily an indicator of the geographical location of the
hearings, meetings
 ‘Venue’ refers to the physical place where the arbitral proceedings
are conducted.(Physical location)
 Meetings or hearings may be held in other countries if convenient.
If so, the ‘seat’ of the arbitration does not change
 Compania Internacional de Seguros del Peru [1988] 1 Lloyd’s Rep.
116 at 121).
 PT Garuda Indonesia v Birgen Air [2002] 1SLR 393

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Seat and Venue distinguished

 Distinction between the seat and venue of an arbitration finds

mention in most arbitration statutes and also the rules of arbitral
institutions. e.g.
 Section 20.3, Arbitration and Conciliation Act, 1996
 Article 23.2 MCIA Rules

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Factors to consider in choosing a seat of arbitration

Is the State a signatory to the New York Convention?

The attitude of the State and courts towards international
arbitration
Finality of the award under the law of the seat. Can an award be
subjected to judicial review or appeal in the courts of the seat?
Location of the assets that a party might want to enforce against
Location of the assets that a party wants to protect
Ease of enforcement of awards
Neutrality of the seat
Knowledge of law of the seat (curial law)
Logistical and other conveniences (e.g. availability of support
services, infrastructure, visas)
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If parties cannot agree on the seat of arbitration

 Lex Arbitri
 Arbitration and Conciliation Act (Section 20.2)
 The Tribunal shall determine the seat by having regard to the
circumstances of the case, including the convenience of the
parties.”
 Procedural/Institutional Rules
 MCIA Rules – Mumbai (Rule 23.1)
 HKIAC Rules – Hong Kong
 KLRCA Rules – Kuala Lumpur
 ICC Rules of Arbitration – the place of the arbitration shall
be “fixed” by the ICC Court, unless agreed by the parties

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Can you choose a procedural law which is different
from the law of the seat?

 Though technically (theoretically and legally) possible, this is rarely

done and not advised.
 “International arbitration is complicated enough without such
flights of fancy.”
Redfern & Hunter on the Law of International Commercial Arbitration

 The courts of the seat of the arbitration will have difficulty applying
a foreign procedural law.
 The law of the seat of the arbitration may contain mandatory
provisions which may override the parties’ choice of a foreign
procedural law.
 Union of India v McDonnell Douglas Corp [1993] 2 Lloyd’s Rep 48
(QBD)
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Arbitration/Procedural Rules

 These rules relate to the processes and mechanism of arbitration.

 Parties have the option to:
 adopt the rules of an arbitral institution
 use ad-hoc arbitration rules (e.g. UNCITRAL Arbitration Rules)
 devise rules tailor –made for a particular dispute
 Such rules should not be confused with the lex arbitri. In reality
there might be a slight overlap between the two.
 Such rules cannot override the mandatory provisions of the lex
arbitri.
 Arbitration rules are meant to coexist with and complement the lex
arbitri.
 Many provisions in lex arbitri are made expressly subject to the
parties’ contrary agreement.
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 Ad-hoc or Institutional Arbitration?

 It is a matter of choice of the parties!

 76% of multinational corporations prefer institutional arbitration
 PriceWaterhouseCoopers - School of International Arbitration, Queen
Mary, University of London study titled International Arbitration:
Corporate Attitudes and Practices 2006
 86% of awards were rendered by arbitration institutions rather
than through ad hoc arbitrations
 PriceWaterhouseCoopers - School of International Arbitration, Queen
Mary, University of London study titled International Arbitration:
Corporate Attitudes and Practices 2008

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Ad-hoc or Institutional Arbitration?

“ Ad-hoc arbitration is like a Rolls Royce of 1920’s vintage – stately

(dominated by retired judges), high fuel consumption (arbitrators fees
are based on the number of ‘sittings’) and it takes almost an eternity
for completion.
Institutional Arbitration could be likened to a Toyota Corolla, it will
take you to the same destination with greater speed, higher efficiency
and dramatically less fuel consumption. ”

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 Ajay Thomas
Arbitrator and Advocate
Arista Chambers

E: ajay.thomas@aristachambers.com
T:+91-9953438490
F-17, Hauz Khas Enclave
New Delhi 110016
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