UK: Sources Of Law In International Arbitrations

Last Updated: 17 July 2008
Article by James Dingemans

The decision of the Court of Appeal in C v. D [2007] EWCA Civ 1282 provides a timely reminder of the importance of identifying the sources of law in all international commercial arbitrations.

Black-Clawson v. Papierwerke [1981] 2 Lloyds Rep 446 is probably the most important judicial analysis of the sources of law in international arbitrations. Mustill J identified three sources of law: the first was the law governing the agreement; the second was the law governing the agreement to arbitrate and the performance of that agreement; and the third was the law of the place where the reference to arbitration is conducted.

The first source of law (the law governing the agreement) will be the law that determines the merits of the dispute, for example: would a certain step amount to a repudiation of the contract; what terms will be implied into the contract; how are damages to be assessed. Very often the source of this law will be by way of express agreement in the contract. Sometimes it may be pursuant to international conventions establishing the system of arbitration, see for example the Convention on the Settlement of Investment Disputes between States and Nationals of other States ("the ICSID Convention").

The second source of law (the law governing the agreement to arbitrate and the performance of that agreement) is a separable and separate agreement in English law, see Harbour Assurance v. Kansa General International Insurance [1993] QB 701. Lord Mustill has noted that the law governing the agreement to arbitrate, and the law of the place where the reference to arbitration is conducted, is frequently the same.

The third source is the law governing the seat of the arbitration. It is trite law that each arbitration has to have a seat. So an arbitration to take place in London will be governed by the provisions of the laws of arbitration in England and Wales, and in particular the provisions of the Arbitration Act 1996. These provisions will govern what assistance (if any) can be obtained from the local Courts in relation to procedural matters, and what challenges (if any) will be entertained to any arbitration award.

There are two other "sources of law" that need to be considered in most international arbitrations. The procedural rules of any arbitration provider specified in the underlying contract or adopted by agreement after the dispute has arisen are important. Well known arbitration providers include for example: the International Chamber of Commerce ("ICC"); the London Court of International Arbitration ("LCIA"); and the International Centre for the Settlement of Investment Disputes. These arbitration providers have made and published rules governing issues of procedure. The importance of these rules is part illustrated by the fact that books have been published dealing with the respective rules, see for example International Chamber of Commerce Arbitration, Third Edition, Craig, Park & Paulsson, or the ICSID Convention, a Commentary, Schreuer (although, as the name suggests, the latter book deals with substantive rights arising under the ICSID Convention as well as procedural rules).

It is sometimes said that there is a further source of law, which is the law of the jurisdiction in which enforcement of any award will be sought. It is certainly important to have a full understanding of where and how any enforcement is likely to take place, and what the relevant local laws provide. However it has always seemed to me to be an overstatement to suggest that this could become a source of law in the arbitration.

In any event the decision in C v. D illustrates the distinct importance of maintaining a clear demarcation in relation to each separate source of law. C v. D was a case involving a dispute between insured and insurer about whether the insurer was liable to indemnify the insured in respect of certain claims which had been paid by the insured. The insurance policy contained the "Bermuda form". The Bermuda form requires the parties to arbitrate in London, but provides that the proper law of the insurance contract is the law of New York. Academic commentaries have suggested that the reason for the choice of London as the centre for arbitration was dissatisfaction with the Court system in the United States. A suggested reason for the provision of the law of New York as the proper law of the insurance contract was disenchantment with aspects of the law of insurance in England.

In C v. D arbitration proceedings were commenced in London once the insurer had refused to make payments under the policy. Certain preliminary issues relating to the insurer's defence were identified to be heard. Following a hearing a partial award was issued by the arbitral tribunal holding that the insurers had failed in their defences. The insurers were dissatisfied and contended that the arbitral tribunal, while purporting to apply the laws of New York, had in fact manifestly disregarded New York law. Requests were made to the tribunal to withdraw the award. Two clerical amendments were made but the tribunal otherwise refused amendment, on the basis that it had no jurisdiction to do so.

The insurers threatened to apply to the Federal Courts in the United States to vacate the award on the basis that the arbitrators had manifestly disregarded the laws of New York (manifest disregard of the law is a permissible ground of challenge ("vacatur") to arbitration awards in the US). The insured sought and obtained an antisuit injunction to restrain the insurers from bringing those proceedings in the United States. The Judge granted the injunction and the Court of Appeal dismissed the appeal.

The Court of Appeal made it plain that agreement that the seat of the arbitration was London was conclusive as to the law governing the remedies for seeking to attack the award. Arguments suggesting that there could exist a right to challenge the award in England and Wales, at the same time as rights to challenge the award under the laws in New York were rejected as without foundation and a recipe for confusion. If it was necessary to do so, Longmore LJ would have held that the law of the arbitration agreement itself was English law, see paragraph 28. C v. D is a reminder of the importance of choosing an appropriate seat for an arbitration.

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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