THE LAW APPLICABLE TO ARBITRABILITY

Date01 December 2014
Published date01 December 2014

This article deals with the determination of the law applicable to the issue of arbitrability. A first distinction has to be made between subjective arbitrability — by reason of the quality of one of the parties, when this party is a State, a public collectivity or entity or public body; and objective arbitrability, by reason of the subject matter of the dispute which has been removed from the domain of arbitrable matters by the applicable national law. With respect to subjective arbitrability, it is generally accepted that a State, a state enterprise or a state entity may not invoke its incapacity to enter into an arbitration agreement to refuse to participate in an arbitration to which it has previously consented. On the other hand, the determination of the law applicable to objective arbitrability is more delicate since the solution to the issue may vary depending on whether it is decided by an arbitral tribunal, by a state court to which one of the parties has concurrently submitted the dispute or in the course of a setting-aside or enforcement procedure. If it is accepted that the lex fori generally applies to the issue when it has to be decided by a court in the context of a setting-aside or enforcement procedure or when the court is concurrently seized by a party which deems the dispute is non-arbitrable, the answer is not as clear when the question of arbitrability has to be decided by an arbitral tribunal: the law governing the arbitration agreement seems to be the prevailing answer but the law of the seat is also sometimes applied.

I. Introduction

1 Although judicial power is an essential prerogative of States, the parties may, if they express the wish to do so, give jurisdiction to arbitrators to settle their disputes. However, the State retains the power to prohibit settlement of certain types of dispute outside its courts. It is then claimed that the dispute is not arbitrable. If an arbitration agreement is entered into, it will not be valid. Arbitrability is indeed a condition of validity of the arbitration agreement and, consequently, of the arbitrators' jurisdiction.

2 This article will be devoted to the determination of the law applicable to the issue of arbitrability as it was just defined, namely, whether a particular dispute may be decided through arbitration and, consequently, whether the arbitration agreement is valid. We will not deal with the issue of arbitrability in the sense that the term is used principally in the US to cover the determination of the scope of the arbitration agreement. So understood, the issue arises when the wording of the arbitration clause is ambiguous or when the dispute is in tort while the clause seems to cover only contractual matters. The interpretation of the scope of the arbitration agreement does not generally raise questions of applicable law. In most cases, it is a plain “common sense” process. And if the question arises as to which rule of interpretation is applicable in a particular case, it should be resolved in accordance with the law governing the arbitration clause.

3 In its usual meaning, arbitrability can be challenged in two different ways: (a) by reason of the quality of one of the parties, when this party is a State, a public collectivity or entity or a public body. One refers in this case to subjective arbitrability or arbitrability ratione personae, which is directly related to the quality of the parties in dispute; and (b) by reason of the subject matter of the dispute which has been removed from the domain of arbitrable matters by the applicable national law. This is objective arbitrability or arbitrability ratione materiae.

4 The issue of arbitrability may arise at various points in the procedure: (a) it will often be invoked in the first place before the arbitral tribunal which will decide on it itself, in accordance with the principle of Kompetenz-Kompetenz; on the other hand, (b) the party which deems the dispute not to be arbitrable may submit it to the court and the court will have to decide upon the objection raised by the defendant on the basis of the arbitration agreement; (c) the non-arbitrability may also be invoked before a court as a ground for a setting-aside procedure; lastly, (d) the objection of non-arbitrability may be raised by the defendant before the court deciding on the recognition and enforcement of the award. At each stage the question arises: what law governs the issue of arbitrability?

II. Subjective arbitrability
A. In general

5 National statutes sometimes contain provisions which limit or exclude the submission of disputes to arbitration when the State or a public entity is a party. In some cases, they prohibit the recourse to arbitration, either in whole or in part.1 In other cases, they subordinate the validity of the arbitration agreement concluded by a State or a public entity to the obtention of a prior authorisation.2

6 The issue of subjective arbitrability arises in particular when a State or a public entity which has signed an arbitration agreement subsequently avails itself of the above provisions to try to avoid the arbitration. In Singapore, the law is very liberal. Both the Arbitration Act3 and the International Arbitration Act4 provide that they are binding on the Singapore government.5 Consequently, the State may enter into an arbitration agreement and will be bound by it in the same manner as any other party to an arbitration agreement to which either Act applies.6

B. The applicable law

7 Initially, the issue of subjective arbitrability was decided in accordance with the law determined by conflict of law rules, namely, the law governing capacity or the law governing the disputed agreement. This method has been progressively abandoned and today the issue is generally determined by the application of a substantive rule of international law.

8 More particularly, there seems to be a general agreement to the effect that the subjective arbitrability of international disputes to which a State, a public collectivity or entity or a public body is a party, is, notwithstanding the contents of the domestic law of the State or entity

concerned, a principle of international public policy of the law of international arbitration.7

9 For decades, the arbitral case law has been consistent on this issue. For example, in ICC Case No 1939 of 1971, the arbitral tribunal dismissed the objection of the State — the defendant in the procedure — according to which administrative contracts could not be submitted to arbitration according to its own law.8 The arbitrators declared that:

If various legislations of French inspiration … prohibit the State or other public entities to enter into an arbitration agreement, it is admitted that this prohibition does not apply to international contracts. Indeed, since it is a rule of public policy, this prohibition can only apply in the internal public order. This is the position of the French case law, which is now well established and undisputed … Art X of the code of civil procedure of ‘the State concerned’ should not be interpreted differently.

10 The arbitrators also added that:

International public policy would strongly oppose that a State organ, dealing with persons who are foreign to the country, could openly, knowingly and willingly, enter into an arbitration agreement with the contracting party who puts his confidence into it, and could therefore, either in the arbitration procedure or at the stage of enforcement, avail itself of the nullity of its own undertaking.

11 In the award rendered on 30 April 1982 in Framatome v Atomic Energy Organization of Iran, the arbitral tribunal rejected the argumentation of nullity of the arbitration clause invoked by the Iranian Organization based on Art 139 of the Iranian Constitution.9 The arbitral tribunal gave the following...

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