AuthorNicholas POON LLB (summa) (Singapore Management University).
Published date01 December 2012
Date01 December 2012

A Return to the Lex Loci Arbitri?

Traditionally, conflict of laws does not feature prominently in international commercial arbitration. However, as more international cross-border complex disputes are resolved by arbitration, conflict of laws is likely to be of greater importance. This article focuses on the relevance and impact of choice of law in international commercial arbitration, with particular emphasis on the importance of choice of law in enforceability of arbitral awards.


1 The burgeoning number of international commercial arbitrations worldwide1 reflects the growing acceptance of arbitration as an effective mode of dispute resolution. Increasingly, parties from different countries and legal systems are electing to resolve their dispute by arbitration. The attractiveness of arbitration as a dispute resolution mechanism for international disputes can be attributed, to a large extent, to the enforceability of awards worldwide.2 This international character of commercial arbitration inevitably raises questions of conflict of laws. As one commentator puts it, “it is almost impossible to avoid issues relating to conflict of laws in international commercial arbitration”.3 The treatment of conflict of laws in international arbitration rose to prominence as a result of Professor Lorenzen's seminal article in 19344 but not much progress has been made since

then.5 Although global efforts such as the United Nations Commission on International Trade (“UNCITRAL”) Model Law on International Commercial Arbitration (“Model Law”) and the Convention on the Recognition and Enforcement of Foreign Arbitral Awards of 1958, or more commonly known as the New York Convention, have gone a long way in reducing conflict of laws,6 much doubt remains over issues such as the applicable law to apply for the substantive merits of the dispute,7 the applicability of lex mercatoria,8 and the law governing the validity of arbitration agreements in the absence of a choice of law rule in the context of jurisdictional challenges.9

2 This article focuses on a conflict of laws problem which has significant practical ramifications for arbitrators, the parties and their counsels, and national courts involved in international commercial arbitration: choice of law in enforcement of award. Generally, choice of law in international arbitration is a “forensic minefield”10 which is avoided unless absolutely necessary. However, choice of law is actually an important aspect in the enforcement stage, especially when there is a challenge to the enforceability of the award. A detailed understanding of the operation of choice of law at the enforcement stage of arbitration will be helpful to all the actors involved in international arbitration. Arbitrators will benefit as they will be better equipped to render an award which is widely enforceable. Knowledge of choice of law issues will also benefit parties and their counsel as they would be more aware of the options available to them in enforcing or resisting enforcement of an award. Last but not least, with fuller comprehension of the operation of choice of law in enforcement applications, national courts will be able to develop their private international law rules in a more coherent manner.

3 The first section of the article sets out how and why there exists a choice of law problem in the enforcement of awards. This will be followed by an introduction and analysis of a proposed framework which should be applied by national courts when confronted with challenges to enforcement of awards. In sum, the article seeks to persuade that the adoption of this framework will result in more certainty for arbitrators and parties, which will, in turn, increase the attractiveness of international commercial arbitration as a private means of dispute resolution.

II. The choice of law problem in challenge of enforcement of arbitral award proceedings

4 Since the proliferation of the New York Convention, enforcement of awards has been relatively straightforward. Nevertheless, an award may be refused enforcement as long as it satisfies one of the exclusive grounds provided for in Art V of the New York Convention.11 The grounds for refusal of enforcement under the New York Convention can be grouped into two distinct types. Grounds for refusal of enforcement of the first type generally do not involve an interpretation of the arbitration agreement but are instead premised on the application of mandatory rules which seek to promote notions of fairness and natural justice. The relevant grounds of this type under the New York Convention are violation of due process,12 and public policy considerations of the enforcing forum.13

5 Grounds for refusal of enforcement of the second type are generally concerned with the interpretation of the terms of the arbitration agreement but also include questions of validity of the arbitration agreement. It is the second type of grounds for refusal of enforcement which attracts the choice of law problem. Whenever there is an issue of interpretation or validity of an agreement, there is inevitably a choice of law consideration. Under a traditional choice of law analysis, a national court will apply its own private international law rules to determine the applicable law. Only when the court has applied its private international law rules and ascertained the applicable law governing the relevant issue, can it then apply the applicable law to resolve the issue. The corollary of this choice of law methodology is that whether a particular ground for refusing enforcement can be established depends on the forum's private international law rules and the applicable law which the rules point toward. Since private international

law rules differ from jurisdiction to jurisdiction,14 the enforceability of an award is therefore very much dependent on the nature of the private international law rules of the enforcing jurisdiction.

6 Although the reason for the existence of a choice of law problem for each of the grounds for refusal of enforcement (of the second type) is the same, namely, that it stems from the need to interpret an agreement, the precise type of choice of law consideration differs according to each ground. It may therefore be helpful to understand the context and nature of the choice of law problem for each ground for refusal of enforcement. These grounds for refusing enforcement are (a) the incapacity of a party to enter into an agreement;15 (b) invalidity of the arbitration agreement;16 (c) the award deals with a dispute not contemplated by or not falling within the terms of the submission to arbitration,17 and contains decisions on matters beyond the scope of the submission to arbitration;18 and (d) inconsistency between the composition of the arbitral tribunal or the arbitral procedure, and the agreement of the parties.19

A. Incapacity: Art V(1)(a) of the New York Convention

7 The first limb of Art V(1)(a) basically provides that an award may be refused enforcement if the parties to the agreement were “under the law applicable to them, under some incapacity”. There is no mechanism which prescribes how the law applicable to the parties' capacity is to be determined. In such a case, the law applicable to capacity then depends on the private international law rules of the enforcement forum.20 However, the law applicable to capacity is notoriously unsettled. Even within the common law, there is no clear choice of law rule.21 Older authorities suggest the law of the domicile,22 or the law of the place of contracting,23 or either in the alternative.24 More modern authorities, however, suggest the use of the objective proper law of the contract.25 Even if there is a settled choice of law rule

at common law, it may differ from those in civil law jurisdictions. For most civil law jurisdictions, the capacity of a juridical person is governed by the law of the country where its headquarters are located (siège social reel).26 Obviously, if the law applicable to capacity depends on the private international law rules of each jurisdiction, the enforceability of the award would depend very much on which forum the winning party chooses to enforce the award in.

B. Invalid arbitration agreement: Art V(1)(a) of the New York Convention

8 Under the second limb of Art V(1)(a), an invalid arbitration agreement is a sufficient ground for a national court to refuse enforcement of an arbitration award. The rationale for this ground stems from the fundamental principle that a party cannot ordinarily be compelled to arbitrate unless an agreement to do so exists.27 Challenges to the enforcement of awards based on this ground are quite common.28 However, courts do not seem to appreciate the choice of law process inherent in this ground of challenge. Courts seem to assume that the choice of law rule is already provided for in Art V(1)(a). Although the rule states that an award may be refused enforcement “if the arbitration agreement is not valid under the law to which the parties had subjected it, or failing any indication thereon, the law of the place where the award was made”, there is actually an antecedent question of ascertaining the system of law to apply to determine if parties had chosen a law to govern the validity of the arbitration agreement. This antecedent choice of law step is typically overlooked by national courts and leading treatises alike.29

9 The recent Singapore case of Denmark Skibstekniske Konsulenter A/S I Likvidation v Ultrapolis 3000 Investments Ltd30 illustrates the courts' lack of awareness of the choice of law question. The respondent

Ultrapolis had originally contracted the appellant DSK to provide professional design services for a 90m yacht. This first agreement was subsequently rescinded in favour of a new agreement for the provision of design services for a 100m yacht. There was a dispute over the amount and payment of work done and DSK proceeded to...

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