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nna Normanton
It might be assumed that this is the same law as that which the
parties had chosen to govern the substantive issues in dispute. But
this is not necessarily a safe assumption.
The applicable law clause set out above refers expressly to the
substantive issues in dispute. It does not refer in terms to disputes
that might arise in relation to the submission agreement itself; and it
would be sensible, in drafting a submission agreement, to make clear
what law is to apply to that agreement.
If no such express designation has been made, and it becomes
necessary to determine the law applicable to the agreement to
arbitrate, what are the choices? There are other possibilities, but the
principal choicein the absence of any express or implied choice by
the partiesappears to be between the law of the seat of the
arbitration and the law which governs the contract as a whole.
Since the arbitration clause is only one of many clauses in a contract,
it might seem reasonable to assume that the law chosen by the
parties to govern the contract will also govern the arbitration clause.
There is a very strong presumption in favour of the law governing the
substantive agreement which contains the arbitration clause also
governing the arbitration agreement. This principle has been followed
in many cases. This could even be implied as an agreement of the
parties as to the law applicable to the arbitration clause.
However, the reference to the autonomy of the arbitration clause, in
this citation, points to the problem that may arise. An arbitration
clause is taken to be autonomous and to be separable from other
clauses in the agreement. If necessary, it may stand alone. In this
respect, it is comparable to a submission agreement. It is this
separability of an arbitration clause that opens the way to the
possibility that it may be governed by a different law from that which
governs the main agreement.
The New York Convention points towards this conclusion. In the
provisions relating to enforcement, the Convention stipulates that the
agreement under which the award is made must be 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
(which will be the law of the seat of the arbitration).
Taking as their point of departure the separability of the arbitration
clause, there are a number of cases, in different jurisdictions, in which
a court or arbitral tribunal has taken the law of the seat of the
arbitration as the appropriate law to govern the parties' arbitration
agreement.
The arbitration agreement should be presumed to be governed by the
law of the seat, which usually coincides with the place with which the
agreement to arbitrate (as opposed to the underlying contract as a
whole) has the closest and most real connection. The Court went on
to proffer that an agreement as to the seat of an arbitration is
analogous to an exclusive jurisdiction clause.
problems may arise, particularly where the contract is made with the
State itself or with a State agency. The problem, shortly stated, is that
the State (as legislator) may change the law and so change the terms
of the contract, lawfully but without the agreement of the other party
to the contract. The State may, for instance, impose labour or import
restrictions, which render performance of the contract more
expensive. Unless the contract has been drafted with such possible
contingencies in mindand they may be difficult to foreseeit is the
private party who will suffer from this change in the equilibrium of the
contract.
One method of introducing a freezing solution, particularly in oil
concession agreements, has been the inclusion of stabilisation
clauses. These are undertakings page "201"on the part of the
contracting State that it will not annul or change the terms of the
contract by legislative or administrative action, without the consent of
the other party to the contract. In one of the arbitrations which arose
out of the Libyan oil ationalisations, the arbitrator held that the Libyan
Government's act of nationalisation was in breach of certain
stabilisation clauses and was accordingly an illegal act under
international law entitling the companies to restitution of their
concessions. This decision is generally criticised as going too far, not
only in its rejection of Libyan law as a basic ingredient of the
governing law clause, and in its so-called internationalisation of the
oil concession agreement, but also in its decision in favour of
restitutio in integrum. In any event, restitution was obviously
impracticable. The only purpose it could serve was to indicate the
basis on which damages should be paid for the allegedly illegal
expropriation.
As their name implies, economic equilibrium (or renegotiation)
clauses attempt to maintain the original economic equilibrium of the
parties at the time of contracting, where subsequent measures might
otherwise alter the expected economic benefits to which the parties
have subscribed. These clauses do not aim to freeze the law. Thus,
newly enacted laws will apply to the investment. However, they will
provide the investor with a contractual entitlement to be
compensated for the cost of complying with new laws or,
alternatively, require the parties to negotiate in good faith to restore
the original economic equilibrium of the contract. Avoiding any
purported restriction on the development of local law, such clauses
thereby steer clear of the principal ground of criticism of freezing
clauses.
In most of the international commercial disputes that are referred to
arbitration, there is a choice of law clause, in addition to the
arbitration clause. As already indicated, the law chose will generally
be that of a given countrythe law of England, or of Switzerland, or
whatever the case may be. The same is true of arbitrations that are
commenced under the terms of a submission agreement.