India: Substantive Law vs. Curial Law : In International Commercial Arbitration

Last Updated: 13 March 2013
Article by Alaya Legal

Law of arbitration as it has developed globally, recognizes that there is a difference between the law of contract and the law governing the conduct of the Arbitral Tribunal. Parties are empowered to nominate which national laws will govern either or both these divisions. In international commercial arbitration, it has become a practice that parties agree upon a substantive law and on curial law. Parties are free to choose substantive law applicable to the contract, curial law applicable to arbitration proceedings and the judicial seat of arbitration. Such choice can be express or by implication Substantive law is the law governing the contract while the curial law is the law governing the arbitration proceedings between the parties to the dispute.

NOTE:
In international commercial arbitration, it has become a practice that parties agree upon a substantive law and on curial law. Parties are free to choose substantive law applicable to the contract, curial law applicable to arbitration proceedings and the judicial seat of arbitration.

The Arbitration and Conciliation Act 1996 (hereinafter called A&C Act) applies to arbitrations which are held in India between Indian nationals and to international commercial arbitrations whether held in India or out of India. Part 1 of the A& C Act covers all hues of international commercial arbitration The Supreme Court in its various judgements has held that the provisions of Part I of the Act would apply to all arbitrations including international commercial arbitrations and to all proceedings relating thereto. Further where such arbitration is held in India, the provisions of Part I would compulsorily apply and the parties are free to deviate to the extent permitted by the provisions of Part I. In the case of international commercial arbitrations held out of India, provisions of Part I would apply unless the parties by agreement, express or implied exclude all or any of its provisions.. Therefore a question arises as to whether part 1 of the A& C Act is excluded either expressly or impliedly by choosing procedural law other than A & C Act for conducting arbitration proceedings. Following the dicta of the Supreme Court and the various High Courts with reference to choice and applicability of substantive and curial law with specific reference to conflict of laws in international commercial arbitrations, the following propositions emerge:

NOTE:
if the language of the arbitration clause clearly suggests that all the three laws of substantive, curial and law relating to the conduct of arbitration are laws of another country, then parties to the international commercial arbitration have impliedly excluded application of Part I of the Arbitration and Conciliation Act 1996.

  1. Parties have the freedom to choose the substantive law governing the international arbitration agreement as well as the curial /procedural law governing the conduct of such arbitrations and the judicial seat of arbitration.
  2. Where there is no express choice of law governing the contract as a whole or the arbitration agreement in particular, there is, in the absence of any contrary indication, a presumption that the parties have intended that the proper law of the contract as well as the law governing the arbitration agreement are the same as the law of the country in which the arbitration is agreed to be held.
  3. Where the proper law of the contract is expressly chosen by the parties, such law must, in the absence of an unmistakable intention to the contrary, govern the arbitration agreement which is a part of such a contract.
  4. The governing law of the contract is the proper law of the contract and unless otherwise provided, such law governs the whole contained in a separate agreement. However the law of the place of arbitration may have its relevance in regard to procedural matters.
  5. In order to determine the curial law in the absence of an express choice by the parties, it is first necessary to determine the seat of arbitration by looking into the agreement.
  6. A claim may be arbitrable under the law governing the arbitration agreement and under the lex arbitri (i.e. law of the place of arbitration but not under the law of the place of enforcement).
  7. The effective conduct of an international commercial arbitration may depend upon the provisions of the law of the place of arbitration.
  8. The choice of a particular place of arbitration may have important and unintended consequences. This is because the law of that place may confer powers on the courts or on the arbitrators that were not expected by the parties.
  9. Pragmatism would prompt that curial law should invariably correspond to where the seat of arbitration is located.

In conclusion it can be said that when substantive law has been agreed by the parties unless contrary is shown, it is presumed that parties would not agree to contrary with respect to curial law. Further if the language of the arbitration clause clearly suggests that all the three laws of substantive, curial and law relating to the conduct of arbitration are laws of another country, then parties to the international commercial arbitration have impliedly excluded application of Part I of the Arbitration and Conciliation Act 1996.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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