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INTERNATIONAL COMMERCIAL ARBITRATION

Question 1A: In the given circumstances what would be available choice of laws for the
Tribunal and as a counsel for the claimant which choice of law do you think the
Tribunal shall apply to determine the substantive law of the contract and why?
Answer: One of the most striking features of international arbitration is the parties' ability to
predetermine the law governing the resolution of the dispute. The clause signifying the
substantive law to be applicable is often referred to as the choice of law' clause. This power
to determine the substantive law provides flexibility to the parties and enables them to reach
at a consensus regarding the particular law after thorough negotiation and analyzing the pros
and cons of every legal system, calculating the risks involved and choosing the one that will
lead to a favourable outcome.
However, the parties may fail to designate the rules of law applicable to the substance of the
dispute, due to disagreement on the choice of applicable law, because of the different
countries they come from with different economic and political and legal backgrounds, or
because they simply overlook the issue, preferring to leave it open rather than not to conclude
the contract, postponing to leave it open rather than not to conclude the contract, postponing
it until a dispute arises.
Whenever such a situation comes before the tribunal or the arbitrator where they may be
called upon to determine the substantive law, the following method is followed by them:
(a)

A conflict of laws rule will be selected by the tribunal or the arbitrator

(b)

Then, the conflict of laws rule will be applied to the dispute in order to find out the

applicable substantive law.


Subject to the applicable rules and lex arbitri, there may be 2 routes the tribunal may embark
upon in exercise of the first function: it may find that it is mandatory for the tribunal to apply
the conflict of rules of the seat of arbitration. Some scholars believe that an arbitrator is
bound by the principle of conflict-of- laws to apply the law where the arbitral tribunal is
seated to consider the substantive law governing the arbitration agreement.
This method is very less applied anywhere because of the criticism it has received. The
theory is criticized on the grounds that focus upon the jurisdictional aspect of arbitration leads
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to attribute to the seat of arbitration all of the characteristics of an ordinary seat of


jurisdiction, localization of the proceeding, there are no organic links between the dispute and
the place of proceeding. Another criticism is that the seat of the arbitration is sometimes not
obvious. Where the parties do not specify the place of arbitration in an arbitration clause, the
will of the parties fails to determine the applicable rules of conflict; and the choice of the
applicable rules is made at the arbitrators discretion, not by the will of the parties.
.
From the perusal of arbitration agreement in the hypothetical problem it is clear that Paris is
the seat of arbitration and the French law is the law applicable on International arbitration. It
can be therefore presumed that the lex arbitri is French Law on International Arbitration.
Also, from a bare reading of the facts it is clear that the procedure is governed by the Swiss
Rules of International Arbitration. Under the French Law, it is provided that the tribunal will
solve the dispute in accordance with the rules of law it considers appropriate. Under the
Swiss Rules, the tribunal shall decide the case by applying the rules of law with which the
dispute has the closest connection.
So, in this hypothetical problem the tribunal has following choices of law available:
a)

Closest connection test- variety of factors is usually taken into consideration to


determine the closest connection (including nationality of parties, place where
dispute has arisen, place where contract was signed etc.). In the hypothetical case
following are given.

b)

seat of arbitration- Paris

c)

Law applicable to the arbitration agreement- French Law.

d)

lex arbitri- French law on International arbitration.

The only fact available in the present case is the lex arbitri, which is French Law. Thus, it
would seem that French Law bears the closest connection to the present dispute.
b) Appropriate Conflict of Law Rules
The tribunal could perhaps apply only the test under French Law, which simply requires it to
first determine what conflict of law rule(s) it considers applicable or appropriate and then
apply the conflict of law rule(s) to determine the substantive law. Going by the language of
the French Law, the arbitrators would not be bound by any system of laws as such, but would
simply have the right to apply a set of rules to determine the governing law.

I am of the view that the tribunal shall apply the closest connection test to determine the
substantive law of the contract. because the closest connection test is the only option that
satisfies both the applicable rules (i.e. Swiss Rules of International Arbitration, which make it
mandatory) and the lex arbitri (i.e. French Law of International Arbitration, which permit the
test to be applied). Also connection test of its own has come to be the most widely accepted
test to determine the substantive law governing the dispute in international arbitration.
Question 1B: Whether the Tribunal can decide the choice of law by applying the non
national sources like the Convention on the law applicable to the International Sale of
Goods (CISG) and/or Convention on the law applicable to contractual obligations
(Rome Convention)?
Answer:
The arbitration agreement; and the applicable law are the two important factors which play an
important role in application of non-national sources of law to decide the dispute by the
tribunal. In this hypothetical case one of these factors, i.e, applicable law itself is to be
determined, hence the other factor arbitration agreement becomes an important factor. It is
crystal clear that in the present case French Law on International Arbitration is the lex
arbitri and the procedure is governed by Swiss Rules of International.
There is a difference in the terms conflict of law rules as used in UNCITRAL Model Law,
other legislations and instruments and the word rules of law used under both the French
Law and the Swiss Rules. The word rules of law is wider than the word conflict of law
rules. The implication of the same is that there is no need to rely on system of national laws.
Hence in the present case, the tribunal can decide the choice of law by applying non-national
sources.

QUESTION 2A: Whether Art. 142 of the Polish Bankruptcy and Reorganisation Act is
applicable on any proceedings before foreign arbitral tribunals?

According to me, the Polish Act is not applicable to the present international arbitration either
as a rule of substantive validity or as one of non arbitrability. As counsel for the claimant, I
have the following arguments to make against the application of the Polish Act in the present
case:
1.

There is no extraterritorial jurisdiction of Article 142 of the Polish Act and also it is

not directly applicable to the arbitration.


2.

National law of the party has no importance in international commercial arbitration,

Although English decision cannot be applied in the present case since one of the parties is
Chinese (and thus, the Insolvency Regulation cannot apply), nonetheless the correct position
is that in the event the substantive law governing the dispute is silent the law of the seat of
arbitration would be applied to determine the question of the continued capacity of the party,
and not the national law of the party.
Question 2B: Whether the subsequent declaration of bankruptcy of the Respondent will
result in the invalidity of the arbitration agreement?
If we analyze the wordings of Article 142 of the Polish Act- it is clear that the date on which a
party is declared as bankrupt, the arbitration clause entered by him shall lose its legal effect.
In more precise term no tribunal will have jurisdiction over such bankrupt party as the
arbitration agreement will be inoperable. But this nowhere suggests that the arbitration
agreement as a whole will be invalid. Therefore, subsequent declaration of bankruptcy of
respondent will not render the arbitration agreement invalid; it will merely lose its effect.
QUESTION 2C: Whether the Court or the Tribunal has the authority to rule on such
jurisdictional issue?
In international commercial arbitration the principle of competence-competence, grants
power to the tribunal to adjudicate upon the jurisdictional issue. Under Indian law under 16 of
A&C Act the principle doesnt mean to leave the question of jurisdiction in the arbitrators
hands alone. However, it is a rule of chronological priority as it is meant to allow the
arbitrators to be the first Judges of their own jurisdiction. In other words, it is to allow them
to come to a decision on their own jurisdiction prior to any Court, thereby limiting the role of
the Courts to the review of the Award.

Question 3A: In the absence of any law governing arbitration clause, how would you
resolve the question as to the validity and existence of the arbitration agreement?
Answer:In international commercial arbitration it is accepted fact that the arbitration
agreement is separate from the main contract and invalidity of one does not result in the
invalidity of the other. It is known as doctrine of separability and further confirmed by
Articles II and V of the New York Convention (NYC). So, although the main contract might
be challenged on the ground of bribery, the arbitration clause is altogether an independent
clause and will have to be challenged separately before the tribunal. .
There is a need to take into consideration certain factors while finding out the the validity and
existence of the arbitration agreement in case the separability doctrine is presumed to not be
applicable, and since the English and Swiss Laws on the point do not converge.
(i)

International Public Policy: determined by national laws keeping in the mind

international sphere
(ii)

Mandatory Laws: which governs the parties to the arbitration agreement

(iii)

Law of Seat of Arbitration: law of the seat of arbitration

(iv)

transnational public policy: general principles that are common to most or all nations

According to me Article V (1) (a) of the New York Convention can be of help while deciding
the issue of validity of an arbitration agreement, in cases where the law which governs the
arbitration clause is absent.
Article V (1) (a) of the New York Convention:
1. Recognition and enforcement of the award may be refused, at the request of the party
against whom it is invoked, only if that party furnishes to the competent authority where the
recognition and enforcement is sought, proof that:
(a) The parties to the agreement referred to in article II were, under the law applicable to
them, under some incapacity, or the said agreement is not valid under the law to which the
parties have subjected it or, failing any indication thereon, under the law of the country where
the award was made.
So under New York convention in absence of any law governing the arbitration clause,
validity of arbitration clause can be challenged by the party on the ground that its not valid.
In this hypothetical situation also the validity of arbitration agreement has been challenged
under English Law on the ground that the same has been obtained through bribery. Which
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law is to be applicable is still in the question, i.e, whether substantive law or lex arbitri is to
be applied- the facts are silent on the same. According to me, we can apply the law of
Switzerland where the award was made. i.e. the law of Switzerland.
Question 3B whether the choice-of-law standard set forth in Article V (1) (a) of the NYC
is Applicable even at the stage of recognition of the arbitration agreement?
Answer: Article V (1) (a) of the New York Convention can be interpreted in two different
ways. The strict interpretation says that its application is allowed only at the stage of
recognition and enforcement of the arbitral award. While the liberal view is kind of
constructive interpretation wherein the court when approached with the issue, can either
decide upon a choice of rule to be applied or can choose to extend application of Article V (1)
(a) to the case.
As stated previously, In this hypothetical situation also the validity of arbitration agreement
has been challenged under English Law on the ground that the same has been obtained
through bribery. Which law is to be applicable is still in the question, i.e, whether substantive
law or lex arbitri is to be applied- the facts are silent on the same. If we take a presumption
that the separabilty doctrine is not applicable then the a choice of law rule will have to be
determined.
In such circumstances liberal view of interpretation will be the most suitable wherein there
will be extension of Article V(1)(a) of the NYC to cover the first stage of arbitration, i.e.
recognition of arbitration agreement by the tribunal.