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anoverview
Filip De Ly*
Table of Contents: I.Introduction II.Scope of the Problem III.Competing Paradigms as to the Applicable Conflict Systems IV.Recent Developments:
Uniform Law and the European Union V.Conclusion.
I. Introduction
Any overview of conflict of laws in international commercial arbitration is
a delicate exercise in view of the breadth and complexity of the topic but
also as it overlaps with the contributions of others in this book. The approach of this report will, thus, be synthetic and also focus on some recent
developments regarding the interface between private international law
and international commercial arbitration.
The difficulties and complexities of the topic of private international
law in international commercial arbitration (encompassing not only issues
of applicable law but also of international jurisdiction and recognition and
enforcement of judgments and arbitral awards) stem from the fact that
arbitrators in international commercial cases are not only facing a conflict
of laws question (which law applies) but also a conflict of conflicts of law
question (which system of private international law applies). This is not
an issue for domestic courts that apply their own system of conflict of laws;
international commercial arbitrators sitting for instance in London, Paris,
New York or Singapore, however, first will have to address the question as
to whether they automatically can apply English, French, New York of Singaporean conflict of laws rules (as a domestic court at any such seat would
do) or whether they may resort to conflict of laws rules different from those
applying before domestic courts at their seat.
This issue is further complicated by the fact that there is a potential
interface between international commercial arbitration which does not live
in a legal vacuum but may need support from domestic courts (for instance
*
Filip De Ly
See De Ly/Sheppard, Lis Pendens and arbitration, Final Report of the International Arbitration Committee of the International Law Association, Report of
the seventy-second conference, Toronto, International Law Association, London, 2006, 146-185, 25 Arbitration International (2009), 3-34.
See De Ly/Sheppard, Res Judicata and arbitration, Interim Report of the International Arbitration Committee of the International Law Association,
Berlin Conference, London, International Law Association, 2004, 826-861,
25 Arbitration International (2009), 35-66; Final Report of the International
Arbitration Committee of the International Law Association, Report of the
seventy-second conference, Toronto, International Law Association, London,
2006, 186-204, 25 Arbitration International (2009), 67-82.
3 A recent example is the Vivendi case where the Swiss Federal Supreme Court
struggled with the question as to the proper characterization of Art.142 of the
Polish Insolvency Act and whether that provision implied that an arbitration
clause has been terminated by operation of law (case 4A_428/2008, decision
of March 31, 2009, available at www.bger.ch).
4 De Ly/Radicati di Brozolo/Friedman, Ascertaining the contents of the applicable
law in international commercial arbitration, Report of the International Arbitration Committee of the International Law Association, Report of the seventythird conference, Rio de Janeiro, International Law Association, London, 2008,
850-882, 26 Arbitration International (2010), 191-220.
Filip De Ly
tional cases under which arbitrators had to apply the private international
law system of the state in which they were sitting. Thus, the law of the
place of arbitration (law of the seat) controlled the question as to which
system of private international law to apply. This traditional paradigm was
still formulated in the resolutions of the Institut de Droit International of
1952 which accepted in this respect the report and recommendations of
Sauser-Hall5.
The traditional paradigm was challenged by Berthold Goldman in his
remarkable and still unique 1963 Hague lectures in which he developed
an autonomous system of conflict rules for international commercial arbitration6. Based on theoretical assumptions (arbitrators have no lex fori
and are unlike domestic courts) and practical considerations (the place
of arbitration is often chosen for reasons of neutrality and there is, apart
from the arbitral seat, no connection between the seat and the subject
matter of the dispute), Goldman developed autonomous conflict principles
to be applied instead of the conflict of laws of the seat. This autonomous
method was developed by Goldman and others and led to methods such
as the cumulative application of competing conflict rules, the cumulative
application of competing substantive rules (bypassing any conflict rule), the
better law approach and the application of general principles of law7. The
autonomous conflict methodology quickly turned also in the development
of a theory of substantive transnational law (lex mercatoria) under which
arbitrators could apply and develop self-regulatory rules based on contracts,
standard conditions, trade usages, customs and general principles of law.
Although different definitions of any such lex mercatoria exist, the most far
reaching goes as to accept that it constitutes a legal system autonomous
from domestic legal systems which can be chosen by parties by virtue of a
choice of law provision of their contract and can be applied by arbitrators
under an autonomous conflict of laws system8.
The challenge of the traditional paradigm by the proponents of an autonomous theory gradually made a big impact on national legislation and
case law, uniform law and arbitration rules and led to some compromises
between the competing paradigms. The liberalization of international ar5
On the Unidroit Principles (ed. 1994, second ed. 2004) and case law thereto,
see www.unidroit.org. See also Bonell, An international restatement of contract
law, The UNIDROIT Principles of International Commercial Contracts, 3rd
ed. (2005), 691pp. A third edition of the Unidroit Principles is being prepared
and should be published end 2010 or early 2011. Other codifications such as
the Principles of European Contract Law have not attained the same level of
(worldwide) dissemination and are much less referred to in international arbitral awards.
Filip De Ly
A final observation relates to procedural law. Whereas the developments described above have attempted and to a certain extent succeeded
in liberalizing international commercial arbitration from the conflict of
laws rules that prevail in the domestic courts at the place of arbitration
and from domestic substantive law, procedural law still is firmly based on
the procedural provisions of the arbitration acts of the place of arbitration.
This can be explained by the fact that challenges against arbitral awards
can only be brought at the place of arbitration with a monopoly for the
courts at the place of arbitration to invalidate arbitral awards on a limited
number of grounds. However, the liberalization of arbitration did occur
here at the level of the applicable procedural law: arbitration is anchored
at the place of arbitration but the procedural law so applicable by and
large only provides for some minimal procedural guarantees and otherwise
leave procedural rules to the parties and, absent party agreement, to arbitral
tribunals (lex mercatoria arbitralis)10. Any such wide party and arbitrator
autonomy also calls for clarifications which in some respects have been met
by self-regulatory codes such as the IBA Rules on the taking of evidence
or the IBA Guidelines on conflicts of interest in international commercial
arbitration11.
The overview above would, however, be incomplete if some recent
developments in relation to the topic of conflict of laws in international
commercial arbitration were not also discussed. These developments relate
primarily to the surge of uniform law in international business law in the
past few decades as well as to the increasing importance of the law of the
European Union.
the basis of the assumption of the application of domestic laws to the dispute where conflict rules are a coordination mechanism determining which
rules are to be applied. Alternatively, under the autonomous theory, arbitrators enjoy large discretionary powers to determine the appropriate conflict
or substantive rules which reinforces the application of self-regulatory rules
in international commercial arbitration.
Two recent developments must in this respect be noted. First, when
the traditional paradigm was reaffirmed and challenged half a century ago,
there was hardly much official (as opposed to self-regulatory) uniform law
applied in international commercial arbitration. Now there is much more as
for instance the Convention on the International Sale of Goods (CISG)
or the EU directives in the field of commercial agency12 or collection of
receivables13 which raises the question as to the status of uniform substantive law in international commercial arbitration. Does it apply by virtue of
its scope of application rules? How about choice of law by the parties for
a domestic law containing uniform law? What about application by arbitrators of uniform law using the indirect or direct approaches? Under the
traditional paradigm, the law of the seat of the arbitration would provide
the relevant conflict principle and a uniform law text would be applied if
a domestic court at the seat likewise would apply it. This would depend
on the scope rules of the uniform law text. However, uniform law is not
domestic law and it is submitted that arbitrators even under the traditional
paradigm have more leeway than national courts in determining the scope
and application of uniform law and, thus, that they are not necessarily
bound by case law of the governing law regarding uniform law. This is
even more so under the autonomous approach where arbitrators using the
indirect or direct approaches may apply uniform law rather than domestic
law indicated by the conflict rule of the place of arbitration. In those cases,
the question is not so much whether arbitrators are authorized to apply
uniform law but in what circumstances they should consider doing so. The
topic of the application of uniform law in international commercial arbitration and its relationship to the conflict of laws in arbitration is important
but a detailed analysis falls outside the scope of this contribution14. For the
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EU law. Arbitrators now are not only facing domestic arbitration law and
international arbitration law (as for instance the New York 1958 Convention and the Geneva 1961 International Commercial Arbitration Convention) but also EU rules that are directly relevant as to the conflict principles
that are to be applied. For instance, LCIA arbitrators sitting in London in
one of the Vivendi/Elektrim cases were faced with the question whether
they had to terminate their proceedings under the EU Insolvency Regulations18 conflict rules as Elektrim was declared bankrupt in Poland and,
under Polish insolvency law, Elektrims bankruptcy had terminated the
arbitration agreement. A majority of the arbitral tribunal (with the Polish
arbitrator dissenting) declined to apply the Polish insolvency rule terminating the arbitration clause by operation of law upon Elektrims bankruptcy
as the EU Insolvency Regulation in Art.s 4, 2 (f) and 15 provided for the
application of the law of the state where lawsuit are pending at the time of
the opening of the insolvency proceedings (rather than the general rule of
the state where insolvency proceedings are opened in relation to the effects
of the insolvency proceedings on current contracts to which the debtor is
party). This decision was followed by the English courts in challenge proceedings against the award19.
Another example is the ECJs case law in relation to the application of
consumer directives in arbitration proceedings where arbitrators must on
their own motion invoke the protective rules of the Unfair Contract Terms
Directive20, even if the consumer appears in the proceedings21 (leading to
setting aside of the award notwithstanding a waiver provision in the Spanish Arbitration Act) and national courts facing requests for enforcement
of awards may refuse enforcement on public policy grounds if the consumer
has not consented to arbitration during the arbitration proceedings22. Although these cases deal with domestic arbitration, they also raise questions
for international arbitration if protective EU rules (for instance in relation
to employees where disputes in some members states are arbitrable but as
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the arbitration exception of the Brussels I Regulation has now been fully
raised.
Endorsed by the West Tankers decision of the ECJ and giving that decision a broad interpretation, the European Commission in the context of the
reform process regarding the Brussels I Regulation has taken the lead and
considers that something needs to be done, primarily to avoid conflicts in
relation to possibly conflicting decisions resulting from parallel proceedings
in arbitrations in one member state leading to awards accepting jurisdiction
and ruling on the merits and court proceedings in another member state
where the courts accept jurisdiction and also rule on the merits. The problem is then primarily that an arbitral award may be refused enforcement in
that other member state because there was no agreement to arbitrate.
In the Brussels I Regulation reform process, the University of Heidelberg prepared a report on the application of the Brussels I Regulation in
the twenty-five member states of the European Union28. In relation to arbitration, the Heidelberg Report proposes to provide for a mandatory and
exclusive jurisdiction ground in relation to ancillary proceedings in support
of an arbitration before the domestic courts of the place of arbitration and
to impose a stay of parallel proceedings if a declaratory action is sought at
the place of arbitration in respect of the existence, validity and/or scope
of the arbitration agreement and to give any decisions of these domestic
courts European wide effects29. In effect, the Heidelberg proposal attempts
to concentrate disputes at the seat of the arbitration. This proposal has
been put for consultation in the EU Commissions Green Paper30 which
led to many reactions. The matter led to controversies with the French
ICC Committee31 and the IBA32 criticizing the Heidelberg proposal and
defences in favour of the proposal by publications of Professor Burckhard
Hess and Peter Schlosser. The most recent development is the critical reaction of the European Parliaments Committee on Legal Affairs33. Any
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Van Houtte, Why not include arbitration in the Brussels Jurisdiction Regulation?, 21 Arbitration International (2005), 509.
35 Draetta/Santini, Arbitration exception and Brussels I Regulation: no need for a
change, 8(3) Diritto del Commercio Internazionale (2009), 554-556.
36 Convention of 16 September 1988 as replaced by the Lugano Convention of
30 October 2007, effective as to the EU and Norway as of 1 January 2010 and
the EU, Norway and Switzerland as of 1 January 2011.
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V. Conclusion
International commercial arbitration has undoubtedly been one of the most
fascinating areas for conflict of laws specialists. Theoretically, the postulate that a decision maker applies its home conflict of laws rules has been
challenged. Methodologically, arbitrators have had to develop a laboratory
of new conflict and substantive methods. Recently, the surge of uniform
law texts and of European Union rules relevant for international business
problems have renewed and aggravated these challenges. It is hoped that
uniform law and conflict of laws scholars and international commercial
arbitration practitioners will continue to cooperate to meet these challenges.