INTRODUCTORY ESSAY

• Citation: (2014) 26 SAcLJ 789
• Date: 01 December 2014
• Author: Lawrence COLLINS Rt Hon Lord Collins of Mapesbury, LLD, FBA, formerly Lord of Appeal in Ordinary, former Justice of the UK Supreme Court.
• Published date: 01 December 2014

1 Honoured As I Am To Have Been Asked To Contribute This Introductory Piece To A Distinguished And Scholarly Collection, I Hope I Will Be Forgiven If I Begin On A Personal Note By Mentioning That I Was Fortunate Enough To Have Worked With Some Of The Pioneers In The Development Of The Law Of International Arbitration, And Some Of The Leading Figures In The Major Controversies In The Field. Some Of Those Controversies Still Resonate But Others Are Now Dead And Buried. I Worked With Dr F A Mann, The Leading Proponent Of The View That De-localised Arbitration Was A Heresy, Over A Continuous Period Of Some 25 Years Until His Death In 1991, Including Our Joint Work On The Famous (or Infamous) Award In The british Petroleum V Libya1 Arbitration In 1973. I Was Assistant To Professor Berthold Goldman (the Prime Proponent — With Professor Clive Schmitthoff — Of The Adoption Of The lex mercatoria In International Arbitration) When He Gave His General Course At The Hague Academy Of International Law In 1975, And I Had A Long Academic And Professional Relationship With Professor Pierre Lalive, Perhaps The Leading Arbitration Practitioner Of His Generation And A Highly Learned And Sophisticated Scholar.

2 Until the seventh edition of Dicey's Conflict of Laws in 1958, arbitration merited only a few pages in that work on the enforcement of arbitral awards, and even with the coming of the Convention on the Recognition and Enforcement of Foreign Arbitral Awards2 (“New York Convention”) applicable law issues were treated as part of the law of enforcement of awards until the 11th edition in 1987, when I attempted to restate the English law on the applicable law in arbitration. Then I was able to say, with apparent confidence, that the procedural law of the arbitration determined what law the arbitrators were to apply, and that English law rejected delocalised arbitration. At the same period Battifol and Lagarde's Droit international privé3 also devoted just a few pages to arbitration, concentrating on enforcement of awards, and with just a paragraph4 on applicable law and the internationalisation of contracts.

3 The traditional view in England (and other common law countries) was that an arbitrator was bound to apply English law, including the English conflict of laws rules, to decide the substance of any dispute. That was because arbitrators in England were bound to apply the law.5 Many of the most important cases in the conflict of laws arose by way of recourse to the courts on matters of law from arbitral awards. Prior to the English Arbitration Act 19966 (“AA 1996”), an English arbitrator could only apply a national legal system, designated as applicable by the relevant choice of law rule. The tribunal could not apply non-national rules, still less decide the dispute ex aequo et bono or as an amiable compositeur, on the basis of general principles of justice and fairness.

4 F A Mann's view was that there was in effect no such thing as “international arbitration” because:7

Every arbitration is a national arbitration, that is to say, subject to a specific system of law … even the idea of the autonomy of the parties exists only by virtue of a given system of municipal law and in different systems may have different characteristics and effects.

5 By contrast, other legal systems (such as French law) permitted the development of much greater flexibility in the approaches of arbitrators to determining the applicable substantive law. This trend was another aspect of the development of “delocalised arbitration”, which saw the mandatory application of the choice of law rules of the forum as an unnecessary fetter on party autonomy. The fullest expression of this approach was found in the development of a doctrine of a new lex mercatoria. This doctrine contemplated that there was a set of rules developed from the practice of merchants and from international codifications, which might be applied directly by the arbitrators, either as a result of an express choice by the parties, or in the absence of any express choice of law.

6 What are the relevant rules of the conflict of laws? Section 46(3) of the AA 1996 provides that where there is no choice of the applicable law, and no agreement as to the application of other considerations the

tribunal is to “apply the law determined by the conflict of laws rules which it considers applicable”. It has been suggested that the possible options are the conflicts rules of the seat, or the conflicts rules most closely connected with the subject matter, or the cumulative application of relevant conflicts rules, or general principles of the conflict of laws.8

7 In Dallah Real Estate and Tourism Holding Co v Ministry of Religious Affairs, Government of Pakistan9 I referred to:

the controversial question of delocalisation of the arbitral process which has been current since the 1950s. It started with the pioneering work of Professor Berthold Goldman, Professor Pierre Lalive and Professor Clive Schmitthoff, which was mainly devoted to the question of disconnecting the substantive governing law in international commercial arbitration from national substantive law. It expanded to promotion of the notion that international arbitration is, or should be, free from the controls of national law, or as Lord Mustill put it in SA Coppée Lavalin NV v Ken-Ren Chemicals and Fertilizers Ltd[1995] 1 AC 38, 52, ‘a self-contained juridical system, by its very nature separate from national systems of law’….

8 This battle is now for all practical purposes over. All of the leading arbitral institutions allow the parties to choose rules of law, and not necessarily a legal system, to govern their contract, and allow the tribunal to apply rules of law in the absence of choice by the parties.

9 The International Chamber of Commerce (“ICC”) Rules of Arbitration10 provide that: “The parties shall be free to agree upon the rules of law to be applied by the arbitral tribunal to the merits of the dispute. In the absence of any such agreement, the arbitral tribunal shall apply the rules of law which it determines to be appropriate.” [emphasis added] The London Court of International Arbitration (“LCIA”) Arbitration Rules11 allow the tribunal to apply “the law(s) or rules of law which it considers appropriate” and the United Nations Commission on International Trade Law (“UNCITRAL”) Arbitration Rules12 provide that in the absence of choice “the arbitral tribunal shall apply the law which it determines to be appropriate”.

10 As Professor Doug Jones shows in his article in this collection13 these rules represent a move away from an express direction to apply a system of the conflict of laws to find the applicable law (voie indirecte). The UNCITRAL Arbitration Rules (1976)14 provided that: “Failing such designation by the parties, the arbitral tribunal shall apply the law determined by the conflict of laws rules which it considers applicable.”

11 The UNCITRAL Model Law on International Commercial Arbitration (“Model Law”) permits the parties to choose rules of law. But, in the absence of choice, it provides that: “… the arbitral tribunal shall apply the law determined by the conflict of laws rules which it considers applicable”.15 Where, therefore, the parties have not exercised their right to make an express choice of law, the arbitrator is bound to apply a national legal system to the resolution of the dispute, and is bound to apply such legal system as is designated by a system of conflict of laws rules. That is the approach substantially adopted by s 46(3) of the AA 1996, which provides.

(1) The arbitral tribunal shall decide the dispute —

(a) in accordance with the law chosen by the parties as applicable to the substance of the dispute, or

(b) if the parties so agree, in accordance with such other considerations as are agreed by them or determined by the tribunal.

…

(3) If or to the extent that there is no such choice or agreement, the tribunal shall apply the law determined by the conflict of laws rules which it considers applicable.

12 It follows that the parties have the freedom to apply a set of rules or principles which do not in themselves constitute a legal system. Such a choice may thus include a non-national set of legal principles (such as the 1994 International Institute for the Unification of Private Law (“UNIDROIT”) Principles of International Commercial Contracts), or, more broadly, general principles of commercial law or the lex mercatoria. Whether they would be wise to do so is of course another matter.

13 In Channel Tunnel Group Ltd v Balfour Beatty Construction Ltd,16 the main construction contract to build the cross-Channel rail link had a governing law clause in the contract, requiring its interpretation “in accordance with the principles common to both English law and French law, and in the absence of such common principles by such general principles of international trade law as have been applied by national and international tribunals”. This choice of law was treated as valid and enforceable by the House of Lords. In that case, the seat of the arbitration was Belgium.

14 Professor Doug Jones cites as an example of the voie indirecte approach s 46(3) of the AA 1996, because it requires the express application of the conflict of laws principles. The best known example of a statutory adoption of the voie directe is Art 1151 of the French Code of Civil Procedure: where no choice of law has been made, the arbitral tribunal should render its award “in accordance with the rules of law it considers appropriate”.

15 It is clear that there has been a movement away from the application of national conflict of laws rules, or even any conflict of laws rules. It is also clear that what evidence there is of arbitral practice supports this approach. But two qualifications must be made. The first is that for obvious reasons the correctness of these approaches has very rarely...