Arbitrability and Conflict of Jurisdictions

Arbitrability and conflict of jurisdictions:
The(diminishing) relevance of lex fori

and lexlociarbitri
Stavros Brekoulakis*
Table of Contents: I.Introduction II.Main Part 1.The meaning and role of
lex fori and lex loci arbitri 2.The meaning and purpose of arbitrability rules 3.Lex
fori and arbitrability 4.Review of the award by national courts in annulment or
enforcement proceedings 5.If not the lex fori, then what law should national
courts apply to determine arbitrability? 6.Lex loci arbitri and arbitrability 7.If
not the lex loci arbitri, then what law should tribunals apply to determine arbitrability? 8.The Elektrim saga on arbitrability and applicable law III.Concluding
Remarks.
I. Introduction
Few terms have attracted more academic attention and discussion than
those of lex fori and lex loci arbitri. The relevance of lex fori and lex loci
arbitri exhibits particular interest when it comes to the question of what
law applies to determine arbitrability, a question that is traditionally linked
with the interests of the State of the place of the arbitration, or the State
of the courts reviewing an arbitral award at annulment or enforcement
proceedings.1
*
Dr. Stavros Brekoulakis, LLB (Athens), LLM (KCL), PhD (QMUL), Advocate;
Lecturer in International Dispute Resolution, Centre of Commercial Law Studies, Queen Mary, University London.
1 Arfazadeh, Arbitrability under the New York Convention: The Lex Fori Re
visited, 17 Arb. Int. (2001), pp.76 et seq; Arfazadeh, Ordre Public Et Arbitrage
International Lpreuve De La Mondialisation, (2006) pp.95 et seq; Hanotiau, What Law Governs the Issue of Arbitrability?, 12(4) Arb. Int. (1996),
391 et seq; Bernardini, The Problem of Arbitrability in General, in: Gaillard/Di
Pietro (eds.) Enforcement of Arbitration Agreements and International Arbitral Awards: The New Convention in Practice (2008), pp.503 et seq. See also,
more generally, about the meaning of lex arbitri, Mistelis, Reality test: current
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At a time when public policy was dominating the discussion on arbitrability, the argument that lex fori should apply to determine arbitrability
reflected legitimate interests of a State to control arbitration proceedings
taking place within its geographical boundaries and to ensure that these
proceedings comply with the public policy standards of that State. Thus,
a State could forbid any arbitration within its territory whose subject matter was inarbitrable, i.e. in conflict with public policy legislation of that
particular State.
However, as the relevance of public policy in the arbitrability discussion
has been considerably waned in the last decades, the predominance of lex
fori as the law applicable to arbitrability makes increasingly less sense. The
aim of the paper is to revisit the scope of application of lex fori and lex loci
arbitri to arbitrability, in light of the new theories on the rationale behind
inarbitrability. In particular, the paper argues that all arbitrability provisions are conflict of jurisdiction rules, whose objective is to delineate the
area of exclusive jurisdiction of its national courts. From this jurisdictional
viewpoint, lex fori and lex loci arbitri should not be considered as the default
applicable law; rather, they should be relevant only if the actual dispute
pending before an arbitration has a territorial or other jurisdictional connection with the courts of the forum or the place of arbitration.
II. Main Part

1. The meaning and role of lex fori and lex loci arbitri
The terms lex fori and lex loci arbitri refer to the law of the forum and the law
of the place of the arbitration respectively, and they have more in common
than the fact that they both present non-Italian lawyers with difficulties
to pronounce. They are essentially underpinned by the same rationale,
which refers to early theories of private international law about territoriality and sovereignty giving pre-eminence to the law of the forum.2 From the
standpoint of territoriality, the place of the proceedings does matter. Thus,
it is reasonable and legitimate for the courts of a forum to primarily apply
their own law. It equally seems reasonable for a tribunal to apply or at least
respect the law of the place of arbitration.
state of affairs in theory and practice relating to lex arbitri, 17(2) American
Rev Intl Arbitration (2006), p.155; and about the meaning of the term Lex Loci
Arbitri see Park, Lex Loci Arbitri and International Commercial Arbitration, 32
International Commercial Law Quarterly (1983), p.21.
2 See Cheshire/North/Fawcett, Private International Law, 14th ed. (2008), p.32.

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But the similarities of these two terms end here: lex loci arbitri is as dissimilar from lex fori as arbitration is from litigation. Despite all the major
theoretical developments of private international law in the last 50 years,3
the law of the forum (lex fori) has retained an important pertinence in litigation. By contrast, in arbitration the role of the seat and its law (lex loci
arbitri) has been considerably curtailed mainly because of the development
of the theory of delocalisation and its remarkable influence in arbitration
law.4
Indeed, in recent years it became increasingly less obvious why a tribunal should apply at first the substantive laws5 and in some cases even the
procedural laws of the seat.6 The argument that arbitration has no forum
has become a truism for a very good reason: it is quite accurate and reflective of the current trend in international arbitration that the interaction
between the arbitration and the legal apparatus of the seat should remain
at minimum levels.7 The national courts of the seat should retain a limited
role, mainly supervising and assisting the arbitration proceedings taking
place in their geographical territory.8
3
4
5
6
7
8
Especially the so-called New American Revolution: see Kegel, II Hague Recueil
(1964), p.95
See the seminal papers about the topic from Paulsson, Arbitration unbound,
30 International Comparative Law Quarterly (1981), 358, and Delocalisation
of International Arbitration: When and Why It Matters, 32 International
Comparative Law Quarterly (1983), 53-61; and Park, The Lex Loci Arbitri and
International Commercial Arbitration, 32 International & Comparative Law
Quarterly (1983), 21-52. See more recently on the subject Dharmananda, The
unconscious choice: reflections on determining the lex arbitri, 19(2) J. Int. Arb.
(2002), pp.151-161; and Greenwood/Reid, Location, location, location: the
choice of seat in international arbitration, 16(7) Cross-border Quarterly 2005,
Supplement, pp.33-39.
See Lew/Mistelis/Kroell, Comparative and International Commercial Arbitration (2003), para. 17-52 et seq.
For example, the current version of ICC Rules Art.15(1) contains no reference
to the seat or the place of the arbitration in relation to the procedural rules
applicable to an arbitration: The proceedings before the Arbitral Tribunal
shall be governed by these Rules, and where these Rules are silent, by any rules
which the parties, or failing them, the Arbitral Tribunal may settle on, whether
or not reference is thereby made to the rules of procedure of a national law to
be applied to the arbitration.
Lew/Mistelis/Kroell, supra n. 5, para. 15-5 et seq.
ML Art.5 that provides Extent of court intervention: In matters governed by
this Law, no court shall intervene except where so provided in this Law.

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2. The meaning and purpose of arbitrability rules

The meaning of the term arbitrability, at least outside the US,9 refers to
the material scope of arbitration. It relates to the question of what types of
issues and disputes can and cannot be submitted to arbitration.10 As arbitration has spectacularly developed in the last 30 years, its scope has increasingly expanded to include disputes that were once considered incapable of
been determined by tribunals.
At the same time the rationale and theory behind inarbitrability has
noticeably changed too. Originally, inarbitrability was mainly underpinned
by public policy considerations.11 A dispute that would implicate national
provisions of public policy was considered beyond the material scope of
tribunals.
However, a series of court decisions in various jurisdictions have now
demonstrated that arbitrators should not be excluded from applying rules
of public policy nature.12 In their decisions, national courts at the highest
In the US it encompasses all issues of jurisdiction. See Shore, The United States
Perspective of Arbitrability, in: Mistelis/Brekoulakis (eds.), Arbitrability: International and Comparative Perspectives, (2009), para. 4-2.
10 Lew/Mistelis/Kroell, supra n. 5, para. 9-1.
11 See Redfern/Hunter (with Blackaby & Partasides), Law and Practice of International Commercial Arbitration, 4th ed. (2004), para. 3-13, who argue:
Whether or not a particular type of dispute is arbitrable under a given law
is in essence a matter of public policy for that law to determine. In the same
vein, Bckstiegel, supra n. 3 at 177 et seq.; Fortier, Arbitrability of Disputes, in:
Aksen/Bckstiegel/Mustill/Patocchi/Whitesell (eds.), Liber Amicorum Briner
(2005), p.276.
12 In the U.S., Mitsubishi Motors Corp v. Soler Chrysler Plymouth Inc, supra n. 1
(with regard to anti-competition claims); in France, Cour dAppel de Paris, 29
March 1991, Ganz v. Nationale des Chemins de Fer Tunisiens (SNCFT), 37 Rev.
Arb. (1991), 478, (with regard to fraud allegations) with note L. Idot; also
Cour dAppel de Paris, 19 May 1993 Labinal v. Mors, 39 Rev. Arb. (1993), 645,
(with regard to anti-competition claims) with note Jarrosson; in England,
Court of Appeal, Fiona Trust & Holding Corporation and Others v. Privalov and
Others, 89(2) Lloyds Law Reports (2007), 267 (with regard to fraud allegations) confirmed by the House of Lords, Premium Nafta Products Limited (20th
Defendant) and others v. Fili Shipping Company Limited (14th Claimant) and others,
[2007] United Kingdom House of Lords (England) 40; in Switzerland, Federal
Tribunal, 23 June 1992, Fincantieri-Cantieri Navali Italiiani and Oto Melara v. M
and arbitration tribunal, XX Yearbook Comm. Arb. (1995), 766 (with regard to

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level have unmistakably accepted that arbitrators nowadays may not only
examine, but also apply national provisions of public policy.13
This shift in the rationale of inarbitrability is crucial to understand
the primary purpose of the national provisions on arbitrability and more
importantly the scope of their application.
There are two different types of national provisions on (in)arbitrability:
first, provisions normally found in arbitration laws, setting out the scope of
arbitrability in general terms. A typical example of this drafting approach
is the Swiss PILA Art. 177(1), providing that [a]ny dispute involving
property may be the subject-matter of an arbitration or the German CCP
Sec. 1030(1) providing that [a]ny claim involving an economic interest
can be the subject of an arbitration agreement.
Second, provisions normally found in non-arbitration laws, providing
for the exclusive jurisdiction of national courts with regard to specific areas
or subject matters. The typical example here is the Council Regulation
(EC) No 44/2001, On Jurisdiction and the Recognition and Enforcement of Judgments in Civil and Commercial Matters (hereafter EC Reg.
44/2001) Art.22, providing that specific national courts of a Member State
will have exclusive jurisdiction over disputes relating to the validity of the
constitution, the nullity or the dissolution of companies (para. 2), or over
disputes relating to the registration or validity of patents or trademarks or
other similar rights (para. 4).14
claims arising out of illegal activities); in the context of the European Union,
ECJ, 1 June 1999, C-126/97, Eco Swiss China Time v. Benetton International,
European Court Reports 1999, 3055 (with regard to anti-competition claims).
13 In Ganz v. SNCFT, ibid, the court held that: in international arbitration,
an arbitrator [] is entitled to apply the principles and rules of public policy
and to grant redress in the event that those principles and rules have been
disregarded.In Fincantieri-Cantieri Navali Italiiani and Oto Melara v. M and arbitration tribunal, ibid, the court stressed that: The fact that the said claim affects public policy would not suffice, in itself, to rule out the arbitrability of the
dispute [] Arbitrability cannot be denied for the only reason that mandatory
provisions of law or a given material public policy make the claim null and void
or its execution impossible.
14 Of 22 December 2000, Official Journal L 012, 16/01/2001 P. 0001-0023. See
also the Austrian Bankruptcy Code Sec. 43(5) KO and Sec. 111(1) and French
Code de Commerce, Art. R662-3, providing for the exclusive jurisdiction of the
Austrian and French national courts respectively over certain types of insolvency disputes. Similarly, the Belgian Law of 27 July 1961 on the Unilateral Termination of Exclusive Distributorship Agreements (M.B. 29.12.1961) provides

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Despite their different drafting style, both types of (in)arbitrability provisions are of the same nature and serve the same purpose. They are conflict
of jurisdiction rules, allocating jurisdiction between national courts and
arbitral tribunals over specific types of disputes. Crucially, their primary aim
is to preserve the jurisdiction of their national courts in relation to specific
types of disputes, rather than to ban arbitration altogether.
Accordingly, national provisions of arbitrability ensure that a specific
dispute is not submitted to arbitration because their state courts have exclusive jurisdiction over this dispute. They do not suggest that a particular
type of dispute is altogether prohibited from being arbitrated within the
territory of a particular state.
3. Lex fori and arbitrability

The above observations about the rationale of inarbitrability and the primary purpose of the national provisions on arbitrability put lex fori in its
right, that is limited, context. National courts should apply lex fori to determine the arbitrability question only when their own jurisdiction is at
stake. Since the main purpose of the national provisions on inarbitrability
is to safeguard the jurisdiction of their national courts, rather than to ban
arbitration altogether, these provisions should apply if, and only if, the
national courts have territorial jurisdiction in the first place over the claim
in question. This in turn will depend on whether the claim in question has
any jurisdictional link with the forum that will determine the arbitrability
question.
For instance, the primary objective of the EC Reg. 44/2001 Art.22
is to ensure that the exclusive jurisdiction of the national courts of EC
Member States in relation to disputes concerning the validity of a patent
or the dissolution of a company is not frustrated. Here, according to the
provision, a national court rather than a tribunal will have jurisdiction.
But the provision should apply only if a Member State has jurisdiction
over the specific claim in the first place. It is not the main purpose of this
provision to prevent all claims concerning the validity of any patent or the
dissolution of any company from being arbitrated within the area of EC,
irrespective of where the patent is registered or irrespective of where the
that, from the moment the exclusive distributorship agreement is performed

in Belgium, Belgian law applies and Belgian courts have exclusive jurisdiction,
notwithstanding any contrary provision.

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company has its statutory seat.15 Rather, the main purpose of the provision
is to ensure that a national court of a Member State rather than a tribunal
will determine a claim concerning the validity of a patent that is registered
with the relevant authority of a EC Member State; or a claim concerning
the dissolution of a company that has its statutory seat16 in an EC Member
State. Therefore, a dispute concerning patents registered with an authority outside Europe or concerning companies with a statutory seat17 outside
Europe will fall outside the material scope of Art.22.
The same applies to the second type of arbitrability provisions referred
to above. Take for example Art.177(1) Swiss PILA, providing that any
dispute involving property may be the subject-matter of an arbitration.
The aim of this provision is to safeguard the jurisdiction of the Swiss courts
in relation to non-property disputes, rather than to ban arbitration of nonproperty disputes altogether. Therefore, Art.177(1) will apply to ensure
that a Swiss national court rather than a tribunal will determine a claim
concerning a non-property dispute upon which the Swiss courts have jurisdiction in the first place. By contrast, any non-property dispute that is
otherwise unrelated to Switzerland, in terms of jurisdiction, will fall outside
the material scope of Art.177(1).
Overall, national provisions on (in)arbitrability do not ban arbitration
of certain types of disputes altogether. Rather, they forbid arbitration proceedings over a particular claim upon which their national courts have
exclusive jurisdiction in the first place. Accordingly, to determine whether
to apply the lex fori on arbitrability or not, national courts will first need to
examine whether they will have jurisdiction over the particular claim.
The above observation is relevant at both stages when the issue of arbitrability may arise:
First, at the pre-award stage, where a national court examines whether
to refer a dispute to a tribunal; and
Second, at the stage after the award is issued, where a national court
reviews the award in annulment or enforcement proceedings.
However it becomes particularly pertinent at the latter stage, because of
the existing national and international legislation framework, expressly
providing for the application of lex fori.
15
Or central administration or principal place of business, see Reg. 44/2001

Art.60(1).
16 Ibid.
17 Ibid.

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4. Review of the award by national courts in annulment or

enforcement proceedings
Here, the view that national courts are bound to apply their lex fori seems
undisputable.18 As regards enforcement proceedings, the wording of the
New York Convention, Art. V(2)(a) is clear, expressly providing that the
question of whether the subject matter of the difference is not capable of
settlement by arbitration will be determined under the law of that country, i.e. the law of the enforcement courts reviewing award (lex fori).
Similarly, with regard to annulment proceedings, a large number of
national arbitration laws include provisions that mirror the NYC Art. V(2)
(a). The typical example here is the ML Art.34(2)(b)(i), providing that
the subject matter of the dispute is not capable of settlement by arbitration
under the law of this State, i.e. the lex fori of the national courts before
which the award is challenged.
Yet, national courts should critically look into the material scope of
these provisions before deciding whether they are relevant to the particular
dispute. Depending on the factual circumstances of the claim in question,
lex fori may not be relevant to apply in all cases.
For instance, an exclusive distribution agreement between an American
and a Russian party to be performed in the US provides for arbitration in
Vienna. After the dispute arises the Russian party is declared insolvent.
Nevertheless, the tribunal decides that it has jurisdiction to hear the dispute and eventually issues an award. The Russian party applies before the
Austrian courts to set the award aside, on the basis that the dispute was
inarbitrable. According to the Austrian CCP Art.611(2)(7) the Austrian
courts will review this issue by reference to lex fori.19 Here, the relevant lex
fori is the Austrian CCP Art.582,20 providing inter alia that only pecuni18
See Bernardini, supra n. 1, p.516.

CCP, Part Six, Chapter Four, Arbitration Procedure (in effect 1 July 2006)
Art.611(2)(7) The subject matter of the dispute is not capable of settlement
by arbitration under the law of this state.
20 Art.582 Arbitrability
(1) Any pecuniary claim that lies within the jurisdiction of the courts of law
can be the subject of an arbitration agreement. An arbitration agreement on
non-pecuniary claims shall be legally effective insofar as the parties are capable
of concluding a settlement concerning the matter in dispute.
(2) Claims in matters of family law as well as all claims based on contracts that
are even only partly subject to the Austrian Landlord and Tenant Act (Miet
rechtsgesetz) or to the Austrian Non-profit Housing Act (Wohnungsgemeinntzigkeitsgesetz), including all disputes regarding the conclusion, existence, termination and legal characterization of such contracts and all claims resulting from
19

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ary disputes can be submitted to arbitration, and the Austrian Bankruptcy

Code Sec. 43(5) KO, providing that certain types of insolvency disputes
must submitted to the exclusive jurisdiction of Austrian courts.
However, neither of the above provisions should apply to the case example above. The aim of the Austrian CCP Art.582 and Austrian Bankruptcy
Code Sec. 43(5) KO is to safeguard the jurisdiction of the Austrian courts
in relation to non-pecuniary and insolvency claims respectively. However,
the Austrian arbitrability provisions refer to only those non-pecuniary and
insolvency claims that would fall under the jurisdiction of the Austrian
courts in the first place. It is not the aim of these provisions to ban any
non-pecuniary or insolvent dispute from being arbitrated within Austrian
territory, irrespective of whether this claim is jurisdictionally connected
with Austria.
Thus, the application of either provision presupposes that the claim in
question falls originally under the jurisdiction of the Austrian courts. In
the above factual scenario, the dispute is between two non-Austrian parties
over a contract that was concluded and performed outside Austria. Overall,
the dispute has no apparent jurisdictional connection with Austria. The
fact that the seat of the arbitration is in Austria grants jurisdiction on Austrian courts to supervise and assist the tribunal, but it does not grant them
jurisdiction with regard to the merits of the dispute.
Therefore, the tribunal by determining the claim against the insolvent
Russian party did not actually violate the Austrian lex fori, safeguarding the
jurisdiction of the Austrian courts, as the Austrian courts never had jurisdiction on the specific claim. Accordingly, there is no scope for the above
Austrian provisions on arbitrability to apply at all. Any non-pecuniary or
insolvency dispute that is otherwise unrelated to Austria, in terms of jurisdiction, will fall outside the ratione materiae of the Austrian CCP Art.582
and Austrian Bankruptcy Code Sec. 43(5) KO.
Similar considerations should apply when national courts review an
award in enforcement proceedings. For example, suppose that a tribunal in
Switzerland decides on a dispute in connection with a patent registered with
the German Patent Office. If one of the parties seeks to enforce the award
in Germany, the German courts will most likely resist the enforcement on
the basis that the award violated the lex fori,21 which grants German courts
the exclusive jurisdiction over the specific dispute. The relevant patent
was registered with the German patent authority, and thus the German
or in connection with the ownership of apartments may not be made subject
to arbitral proceedings. Statutory provisions which are not included in this
Chapter and according to which disputes may not or may only under certain
circumstances be made subject to arbitral proceedings shall not be affected.
21 German CCP Art.1030(1) or EC Reg. 44/2001 Art.22(4).

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national courts did indeed have exclusive jurisdiction over the particular
dispute. The tribunal by assuming jurisdiction over this dispute violated the
German lex fori and, therefore, in this case the German courts should rely
on the lex fori to resist the enforcement of the award in Germany.
However, if in the above example the dispute related to a patent registered in a country other than Germany and preferably outside Europe,22
the German provisions on arbitrability would not apply. For the purpose of
German CCP 1030(1) or EC Reg. 44/2001 Art.22(4) is to safeguard the
exclusive jurisdiction of the German courts in relation to non-pecuniary
disputes related to Germany, or disputes over the registration or validity of
a patent that is registered with a Germany authority.
In the above scenario though the specific claim determined by the
tribunal would be jurisdictionally unrelated to Germany. The tribunal in
Switzerland by deciding to determine the merits of the patent dispute would
not violate the German lex fori, whose main objective is to safeguard the jurisdiction of the German courts. Simply because the German courts would
not have jurisdiction on the specific dispute anyway. Accordingly, there
would be no scope for the German lex fori on arbitrability to apply as the
claim in question would fall outside its material scope.
5. If not the lex fori, then what law should national courts
apply to determine arbitrability?
When lex fori is not relevant, which law should national courts seek guidance from when reviewing an award in terms of arbitrability? Should they
take into account the law of a different state that is possibly relevant in the
dispute and its resolution? For example, should the courts of enforcement
look into the law of seat? Similarly, should the annulment courts look into
the law of one of the parties?
The answer to all the above questions has to be in the negative. Arbitrability relates to the allocation of jurisdiction between national courts
and tribunals, and it is therefore a matter of procedural nature. According
to an established rule of private international law, national courts should
only look into the lex fori to determine procedural issues.23
Indeed, the national courts of annulment or enforcement lack jurisdiction or authority to look into the merits of the dispute. They only need
to review the arbitrability question raised by the award to find whether
the award has violated any of their domestic jurisdictional rules, granting
exclusive jurisdiction on the courts of lex fori. The national courts of an22
23
In which case the Reg. 44/2001 Art.22 might come into play.
Cheshire/North, supra n. 2

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nulment or enforcement are only interested in finding whether the award

has determined a dispute that must have been exclusively determined by
the courts of lex fori. It should be irrelevant for the enforcement or annulment courts, if the award has determined a dispute which must have
been submitted under the exclusive jurisdiction of the national courts of
another state, violating thus the arbitrability rules of that state. From the
standpoint of lex fori, the award will be perfectly valid and enforceable and
there will be no need to review arbitrability any further by reference to any
other national law. There is no general duty for the enforcement or annulment courts to safeguard the exclusive jurisdiction of the national courts
of another country.
There is one possible exception however to this rule: in exceptional
cases a national law may provide that its national courts have a duty to
ensure that the jurisdiction of the national courts of different country is
safeguarded. This is, for example, set out in the UNCITRAL ML on CrossBorder Insolvency, which is also pertinent to arbitrability. It provides in
Art.20 that upon recognition of insolvency proceeding before the courts of
a foreign country the commencement or continuation of individual actions
or proceedings before the national courts of the ML country concerning
the debtors assets, rights, obligations or liabilities must be stayed. As is
generally accepted, the term individual actions or proceedings in Art.20
includes arbitration proceedings.24 Therefore, if the issue of arbitrability is
referred to the national courts of a country that has adopted the above ML,
these national courts will have the duty to apply the adopted ML (i.e. lex
fori) and prohibit any arbitration proceedings taking place within its territory, on the basis that insolvency proceedings have commenced before the
national courts of a foreign country. Otherwise, the exclusive jurisdiction
of the latter would be violated, which is exactly what the ML Cross-Border
Insolvency aims to avoid. But, unless such an express lex fori provision exists, national courts will have no duty to protect the exclusive jurisdiction
of the national courts of foreign country.
6. Lex loci arbitri and arbitrability

The previous sections argued that national courts should not always apply the lex fori to review arbitrability. There is even less justification for
tribunals to apply the lex loci arbitri when the issue of arbitrability arises in
arbitration, as tribunals are not necessarily subject to the law of the seat
24
See UNCITRAL Model Law on Cross-Border Insolvency with Guide to Enactment, para 145, available at http://www.uncitral.org/pdf/english/texts/insolven/
insolvency-e.pdf.

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of the arbitration. This does not mean that tribunals should ignore the lex
loci arbitri. On the contrary there are two good reasons for arbitrators to
take the law of the seat into account: first, to avoid issuing an award that is
unenforceable.25 Secondly, to avoid issuing an award that may be annulled
by the national courts of the seat.26
Yet, tribunals will have to apply the lex loci arbitri only if the law of the
seat is jurisdictionally relevant to the dispute in question, namely if the
dispute pending before the tribunal falls under the exclusive jurisdiction of
the national courts of the seat, in accordance with their mandatory laws.
For example, suppose that an American and a French company enter
into a contract, containing a clause that provides for arbitration in Paris.
After a dispute arises, the French company becomes insolvent. Nevertheless, the American party commences arbitration proceedings in Paris in
accordance with the arbitration clause. Here, the relevant lex loci arbitri
will be the French Code de Commerce, Art. R662-3, providing for the
exclusive jurisdiction of the French national courts over certain types of
insolvency disputes.
In this case, the tribunal will have to apply the lex loci arbitri, as the
insolvency claim against the French company will normally have to be
submitted to the jurisdiction of the French courts. The dispute before the
tribunal falls under the scope of the lex loci arbitri that grants exclusive
jurisdiction on the French courts. If the tribunal ignores the lex loci arbitri
here, the award might be set aside by the French courts.
Conversely, if the claim in the above example was against a Russian insolvent party, the relevance of the French lex fori arbitri would be questionable. In fact, the dispute between the American and the Russian party would
fall outside the material scope of the French insolvency law altogether.
There would be thus no reason for the tribunal sitting in France to take the
French insolvency law into account, as the French courts would have no
jurisdiction over the dispute pending in arbitration anyway. There would be
no jurisdictional conflict between the French courts and the tribunal, and
thus there would be no scope for the French lex loci arbitri to apply.
25
The law of the seat is expressly referred to in Art. V(1)(a) New York Con
vention; Geneva Convention also makes reference to the lex loci arbitri,
ArtIX(1)(a).
26 See Bernardini, supra n. 1, p.513.

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7. If not the lex loci arbitri, then what law should tribunals
apply to determine arbitrability?
Provided that the lex loci arbitri is not relevant, the question of which rules
should tribunals apply will still remain open. Against which standards
should tribunals determine the arbitrability of a pending dispute?
The law applicable to the merits will not be relevant, as the issue of arbitrability is a matter of jurisdiction rather than substance. Thus, tribunals
should avoid determining the arbitrability of the pending dispute by reference to the applicable substantive law. Similarly, the law applicable to the
validity of the arbitration agreement will not be relevant, as arbitrability is
not a matter related to the validity of an arbitration agreement.27
Here two alternatives will be possible. First, a tribunal should examine
whether the law of the possible place of enforcement would be jurisdictionally relevant. Although not directly binding on a tribunal sitting in a different state, the law of the enforcement may be relevant from a pragmatic
standpoint. In case the tribunal determines a dispute, which according to
the law of the enforcement place must have been exclusively determined
by the enforcement courts, the award will most likely be unenforceable at
that place. However, this presupposes that the enforcement courts will have
exclusive jurisdiction over the dispute pending before the tribunal in the
first place. This will be, for example, the case if a claim is brought before a
tribunal in Paris against a Russian company that became insolvent after the
conclusion of the arbitration agreement. If the tribunal assumes jurisdiction
over this dispute, which according to Russian insolvency law must have
been exclusively submitted to Russian courts, the award will violate the
Russian law on arbitrability and it will therefore be unenforceable there.
Second, if the possible place of enforcement is jurisdictionally irrelevant
to the dispute (suppose that in the above example the Russian insolvent
company has assets in Poland) or it is not possible to safely predict the place
of enforcement, a tribunal should decide the issue of arbitrability irrespective
of any national law.
27
Brekoulakis, On Arbitrability: Persisting Misconceptions And New Areas Of

Concern, in: Mistelis/Brekoulakis (eds.), Arbitrability: International and Comparative Perspectives, (2009), Chapter 2.

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Instead, tribunals should determine arbitrability on the basis of the inherent or practical limitations of arbitration as a dispute resolution mechanism.28 The crucial arbitrability question for tribunals should be whether
they are able to successfully dispose of the dispute at hand or the dispute
due to the inherent limitations of arbitration can be effectively resolved by
a national court only. If the former applies, the dispute should be considered
arbitrable by the tribunal.
For example, if the pending dispute concerns the ownership of a patent,
which is registered with the Swiss Patent Office,29 the arbitrator should
declare the dispute arbitrable, even if the tribunal sits in a country that
does not generally accept the arbitrability of this type of dispute. In such a
case, the Swiss Patent Office would accept the arbitral award to amend its
registry, and thus the dispute will be successfully resolved.
However, if the pending dispute relates to the ownership of a patent,
which is registered with a national patent authority that does not accept
arbitral awards as a valid legal reason for the amendment of its record,
the tribunal should declare the dispute inarbitrable, even if the arbitration
takes place in a country that accepts arbitrability of such type of disputes,
for example Switzerland. In this case, only a national court could successfully resolve the dispute over ownership of the patent; thus, the dispute
will in effect be inarbitrable. What the tribunal should really be concerned
about is whether its decision will be able to successfully resolve the dispute
at hand.
Equally, the arbitrability of a dispute may be constrained by the contractual nature of arbitration. For example, some types of intra-company
disputes are considered inarbitrable because arbitration proceedings between two shareholders that are parties to an arbitration agreement will not
allow other shareholders that are not parties to the arbitration agreement to
participate in the arbitration, no matter how implicated these shareholders
might be in the intra-company dispute. Thus, the ensuing arbitral award can
only bind those shareholders that are parties to the arbitration agreement,
but it cannot affect any third-party shareholder not bound by the arbitration
agreement, even if this third party shareholder is strongly implicated in the
dispute before the tribunal. Therefore, the award will only have a limited
inter partes effect, leaving the dispute partially resolved only. In such a case,
it is questionable whether arbitration is fit to deal with intra-corporate disputes that implicate several shareholders. Depending on the factual circumstances, this type of disputes might be better addressed by national courts,30
28
Ibid.
As is well-known, the Swiss Patent Office accepts the award as a valid reason
to amend the registry.
30 See EC Regulation 44/2001 Art.22(2)
29

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as national litigation rules provide for multiparty proceedings and take into
account the interests of all the parties involved in the dispute.31
Similar theory underpins the inarbitrability of some other types of insolvency disputes where arbitration proceedings may not allow for the interests of third parties implicated in the resolution of insolvency disputes.32
Thus, the resolution of a dispute between a creditor and the insolvent party
before a tribunal may affect other creditors who never signed an arbitration
agreement. Since, the insolvent estate is limited and creditors recover their
claims pro rata, the arbitrators valuation of one creditors claim may have
serious financial repercussions on the legal rights and interests of the rest
of the creditors who have not signed an arbitration agreement and they are
thus unable to participate in it.33 Again, in such as case tribunals may find
that if an insolvency dispute seriously implicates third-party creditors, the
dispute might be better left for national courts to determine.
Overall, inarbitrability should be read as inability of arbitration to
provide for an effective resolution of a specific dispute. This proposition
in effect constitutes an autonomous substantive rule on arbitrability which
tribunal should look into when deciding the issue of arbitrability. This approach will make a tribunals decision more relevant to commercial practice
and it will thus increase effectiveness of arbitration as a dispute resolution
mechanism.
8. The Elektrim saga on arbitrability and applicable law

In practice the matter of applicable law and arbitrability remains complicated and unsettled. This is clearly evidenced by the dispute between Vivendi
and Elektrim and the different approaches taken by different tribunals and
different national courts in relation to what was essentially the same issue:
whether Elektrims insolvency in Poland have an impact on arbitration
proceedings pending in a place other than Poland.
In the ICC arbitration case Vivendi v Deutsche Telecom et alia34 taking
place in Geneva, one of the co-respondents, Elektrim was incorporated
under Polish law and requested the tribunal to terminate the arbitration
31
See Viscasillas, Arbitrability of (Intra-) Corporate Disputes, in: Mistelis/Brekoulakis (eds.) Arbitrability: International and Comparative Perspectives, p.273.
32 See Liebscher, Arbitrability: International and Comparative Perspectives, p.16567; Cohen, Arbitrage et Socite (1993), para. 243.
33 Culhane, ADR Meets Bankruptcy: Cross-Purposes or Cross-Pollination? Limiting Litigation Over Arbitration in Bankruptcy, 17 American Bankruptcy Institute Law Review (Winter 2009), p.493.
34 Unreported.

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proceedings against it on the basis that it had been declared insolvent in

Poland. Elektrim relied on the Polish law as the lex concursus or law of
the country of the opening of the insolvency proceedings. Art.142 of the
Polish Bankruptcy and Recovery Law provided that:
Any arbitration clause concluded by the bankrupt shall lose its legal
effect as of the date bankruptcy is declared and any pending arbitration
proceedings shall be discontinued.
The tribunal classified this question as a matter relating to subjective
arbitrability, affecting Elektrims capacity to continue to participate in the
pending arbitration proceedings. Accordingly, the tribunal applied the conflict of laws of the lex fori, Swiss PILA Art.154, which provides that this
issue must be determined by the law of incorporation (lex societatis) of the
company; in this case Polish law. Thus, and in accordance with Art.142
of the Polish Bankruptcy and Recovery Law, the tribunal concluded that
Elektrim lacked the capacity to continue participating in the pending arbitration proceedings in Geneva. The tribunals decision was subsequently
upheld by the Swiss Federal Supreme Court in annulment proceedings.35
A few comments on this decision: first, the issue of subjective arbitrability should be distinguished from the issue of capacity to participate
or continue participating in arbitration proceedings. The former refers to
the capacity of a natural or legal entity to validly conclude an arbitration
agreement and therefore the capacity of that entity to become a party to
an arbitration agreement. This is an issue that must be determined by reference to the time of conclusion of the arbitration agreement. The latter
refers to the capacity of a legal or natural entity to become a party to the
arbitration proceedings, and it is determined by reference to the time of
commencement of the arbitration proceedings. Accordingly, in this case
Elektrim did not lack the capacity to validly enter into an arbitration agreement (subjective arbitrability), as it was solvent at the crucial time of conclusion of the arbitration agreement. Thus, the only relevant question in
this case was whether Elektrim had the capacity to continue participating
in the arbitration proceedings.
Secondly and closely interrelated with the previous point: the question of whether a party has the capacity to participate in the arbitration
proceedings is a purely procedural issue and should be solely determined
by reference to the lex arbitri; in this case the ICC rules and, to the extent
relevant, the lex loci arbitri. It is questionable whether the law of one the
parties, Polish law in that case, should be relevant here.
Third, if the lex loci arbitri (Swiss law in this case) is in principle relevant in this case, the next step should be to determine whether it will be
35
Vivendi SA et al. vs. Deutsche Telekom AG et al., 4A_428/2008.

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applicable too. Going back to the true essence of national provisions of

inarbitrability, the main questions here is whether there is Swiss law granting exclusive jurisdiction on Swiss courts over claims against an insolvent
party, and more importantly whether Swiss courts will have jurisdiction
over the specific claim against Elektrim. But the answer to this question is
in the negative. Swiss courts would never have jurisdiction over the dispute
between Vivendi and Elektrim, as the dispute arose out of a contract that
was neither concluded nor performed in Switzerland. In addition, neither of
the parties to the dispute, and more crucially the insolvent party, was Swiss.
In other words, the specific claim fell outside the scope of Swiss law as the
lex loci arbitri, which would thus be inapplicable to this case.
Finally, with regard to the question of which rules should the tribunal
apply to determine the arbitrability issue in this case, the above observations should apply. Thus, the tribunal should first consider the law of the
possible place of enforcement. Here of course, Poland may be a likely candidate, although not necessarily. Eventually though, the tribunal should
look into the facts of the case, and see whether it could effectively resolve
the dispute irrespective of the insolvent status of Elektrim. This would have
been the most commercially pertinent approach for the tribunal to take in
relation to Elekrims insolvency and its effect on the pending arbitration
proceedings in Switzerland.
Interestingly enough in a parallel arbitration involving the same parties,
the tribunal sitting in London -under the LCIA rules this time- took a different approach from that taken by the tribunal in Geneva. It held that the
Polish provision of Bankruptcy and Reorganization Law, Art.142 was not
applicable to the arbitration in London and it therefore rejected Elektrims
objections to the Tribunals jurisdiction.
Further, when Elektrim sought to set the award aside by English courts,
English courts took a different approach than that taken by the Swiss Federal Supreme Court. The High Court decided, by application of the EU
Insolvency Regulation36 that the law applicable to determine the effect of
the Polish bankruptcy proceedings upon lawsuits pending, i.e. the London arbitration proceedings, was the law of the Member State in which
that lawsuit is pending, in this case English rather than Polish law.37 But,
since the claim against Elektrim did not fall under the material scope of
an English provision granting exclusive jurisdiction on English courts over
the specific claim, no English provision on arbitrability was violated, which
36
Council Regulation (EC) No.1346/2000 on Insolvency Proceedings, applicable

to both England and Poland), Art.15.
37 Syska & Elektrim SA v Vivendi & Others [2008] EWHC 2155 (Commentary)
now reported at 90(2) Lloyds Law Reports (2008), 636

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Stavros Brekoulakis
made the dispute arbitrable from English point of view. This was the correct
approach taken by the High Courts Decision, which was recently upheld
by the English Court of Appeal.38
III. Concluding remarks

It is very difficult to change old, and possibly bad, habits. Hence, national
courts tend to apply, some times out of a natural reaction, the lex fori as
the default rule when determining the question of arbitrability. This is in
particular the case for national courts reviewing an award at the stage of
annulment or enforcement. The entrenched attitude of national courts
unavoidably affects the approach of tribunals, which also feel obliged to
look into the lex loci arbitri by default, lest the ensuing award is annulled by
the national courts of the place of arbitration.
However, as this paper argued, while courts and tribunals should always
look into the lex fori and the lex loci arbitri, they should not always apply
them to determine the issue of arbitrability eventually.
As was shown, all national provisions on inarbitrability, irrespective of
their different drafting style, are effectively conflict of jurisdiction rules,
allocating jurisdiction between national courts and arbitral tribunals over
specific types of disputes. Overall, arbitrability provisions do not ban arbitration of certain types of disputes altogether. Rather, they suggest that a
specific dispute cannot be submitted to a tribunal because the state courts
of a particular country have the exclusive jurisdiction to hear the specific
dispute on the basis of the factual circumstances of the dispute
Accordingly, national courts should apply the lex fori to determine the
arbitrability question only when their own jurisdiction is at stake. The lex
fori provision on arbitrability should apply only if the national courts have
jurisdiction in the first place over the claim in question. This in turn will
depend on whether the claim in question has any jurisdictional link with
the forum that will determine the arbitrability question.
The same observations apply in relation to the lex loci arbitri, which
tribunals should apply to determine the question of arbitrability only if the
dispute is jurisdictionally relevant to the courts of the seat. That is only
if the national courts of the seat will have exclusive jurisdiction over the
dispute pending before the tribunal.
Eventually, tribunals should determine arbitrability on the basis of commercial and pragmatic considerations looking into the inherent or practical
38
Syska (Administrator of Elektrim) v Vivendi Universal [2009] EWCA Civ 677,

available at http://www.bailii.org/ew/cases/EWCA/Civ/2009/677.html

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limitations of arbitration as a dispute resolution mechanism. The crucial

arbitrability question for a tribunal should be whether an arbitral award is
able to successfully dispose of the dispute. If the answer to this question
is in the affirmative, the dispute should be considered arbitrable by the
tribunal.
The jurisdictional approach suggested here may help courts and tribunals to take a more apposite and therefore commercially pertinent approach
to the complicated issue of law applicable to arbitrability. This in turn will
increase the material scope of arbitration and will lead in fewer awards being annulled or resisted enforcement.

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