The validity, effect and interpretation of an arbitration agreement are governed by its “proper law”. The proper law of an arbitration agreement is usually the same as the proper law of the contract. If, however, there is no express choice of the law governing the contract as a whole, or the arbitration agreement in particular, a presumption may arise that the law of the country where the arbitration is agreed to be held is the proper law of the arbitration agreement.
The proper law of arbitration decides whether the arbitration clause would equally apply to a different contract between the same parties or between one of those parties and a third party.
The governing arbitration agreement applies to issues such as whether the agreement was concensual or induced by coercion, undue influence, fraud, misrepresentation; or mistake, validity, effect, interpretation and scope of the arbitration agreement.
Such law will also ordinarily decide whether the arbitration clause binds the parties even when one of them alleges that the contract is void, or voidable or illegal, or that such contract has been discharged by breach or frustration (see Heyman v Darwins, (1942) 1 All ER 337).
Freedom to choose
The parties have the freedom to choose the law governing an international commercial arbitration agreement.
They may choose the substantive law governing the arbitration agreement as well as the procedural law governing the conduct of the arbitration. Such choice is exercised either expressly or by implication. Where there is no express choice of the 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 at the law governing the arbitration agreement are the same as law of the country in which the arbitration is agreed to be held (see National Thermal Power Corporation v Singer Company, AIR 1993 SC 998 ).
On the other hand, 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, though collateral or ancillary to the main contract, is nevertheless a part of such a contract (see National Thermal Power Corporation v. Singer Company, AIR 1993 SC 998 ).
Law governing proceedings
In the absence of any agreement to the contrary, arbitration proceedings are conducted in accordance with the law of the country in which the arbitration is held.
However if the parties specifically choose a different law to govern the conduct and procedure of the arbitration, the arbitration proceedings will be conducted in accordance with that law so long as it is not contrary to the public policy or the mandatory requirements of the law of the country in which the arbitration is held.
If no such choice has been made by the parties, expressly or by necessary implication, the procedural aspect of the conduct of arbitration (as distinguished from the substantive agreement to arbitrate) will be determined by the law of the place or seat of arbitration.
In the event that the parties have, stipulated that the arbitration between them will be conducted in accordance with a set of arbitration rules, those rules will govern the conduct of the arbitration, except insofar as they are in conflict with the mandatory requirements of the proper law of arbitration, or of the procedural law of the seat of arbitration (see Bank Mellat v. Helliniki Techniki.  3 All ER 428).
Laws governing arbitration proceedings may be different from those that govern any award.
The Supreme Court of India in Sumitamo Heavy Industries v ONGC, AIR 1998 SC 825, observed that the curial law governs the procedure and conduct of the proceedings before the arbitrator.
The arbitrator’s authority, power and duties in the reference come to an end and he becomes “functus officio” after the proceedings.
The enforcement process therefore is subsequent to and independent of the proceedings before the arbitrator. It is not governed by curial or procedural law that governed the procedure which is followed by the arbitrator in the conduct of arbitration.
A big advantage
The freedom to choose the law governing an agreement, and the seat of the tribunal for resolving any disputes arising out of that agreement, is one of the biggest advantages of resolving disputes through arbitration.
This freedom gives all parties the option to best protect their interests and reduce the costs and increase the convenience in case of any potential disputes.
Titus & Co Advocates is a full service law firm based in New Delhi. The firm can be contacted at firstname.lastname@example.org.
Titus & Co
R-77A Greater Kailash-I
New Delhi – 110 048
Tel: +91 11 2647 5800, 2647 0700, 2628 0100
Fax: +91 11 2648 0300, 2648 9950
Email: email@example.com; firstname.lastname@example.org