Answer By law4u team
In arbitration, governing law refers to the law that regulates the arbitration process and the substance of the dispute. There are two key components of governing law: procedural law (also called law of the arbitration) and substantive law (also called law of the contract or applicable law to the dispute). The governing law is essential because it shapes the entire arbitration process, including how proceedings are conducted, which laws are applied to resolve the dispute, and how the arbitral award is enforced.
1. Procedural Law (Law of the Arbitration)
The procedural law governs the arbitration process itself, including the rules and procedures that arbitral tribunals must follow during the proceedings. This includes rules related to:
- Appointment of arbitrators
- Conducting hearings
- Evidence and documentation
- Interim measures
- Challenges to the arbitral award
The procedural law also determines the jurisdiction of the arbitral tribunal and the court's role in enforcing the arbitration.
Example: If the seat of arbitration is London, the English Arbitration Act would govern the arbitration process, regardless of the parties' nationalities or the substance of the dispute.
2. Substantive Law (Law of the Contract or Dispute)
The substantive law determines the rights and obligations of the parties involved in the dispute. It governs the actual issues in dispute, such as whether a party has breached a contract or whether a party is entitled to damages.
Example: If the parties are involved in a dispute regarding a contract for the sale of goods, and the contract specifies that it is governed by Indian law, the arbitrators will apply Indian contract law to resolve the issue.
3. Law of the Arbitration Agreement
The law that governs the arbitration agreement itself is sometimes considered a separate category of law. This law is crucial in determining the validity and enforceability of the arbitration agreement. This may be the substantive law chosen by the parties (e.g., Indian law or English law) or the law of the country where the seat of arbitration is located.
Example: If two parties choose English law to govern their arbitration agreement, even if the dispute arises under a different contract governed by Indian law, the validity of the arbitration agreement will be determined by English law.
4. Choice of Law in International Arbitration
In international arbitration, the parties are often from different legal jurisdictions, which raises the issue of conflict of laws. The parties typically choose the law to govern their arbitration process (procedural law) and the substantive law (law governing the contract or dispute). This is one of the most significant aspects of international arbitration as it determines how the arbitration will be conducted and which legal rules will apply to the dispute.
Example: If a dispute arises between a U.S. company and an Indian company under a contract governed by Indian law, but the arbitration is seated in Singapore, the procedural law will likely be Singaporean law (because that is where the arbitration is taking place), but the substantive law could remain Indian law (because that is the governing law of the contract).
5. Impact on the Arbitration Process
Jurisdiction of the Arbitral Tribunal:
The governing law determines the jurisdiction of the arbitral tribunal and whether the tribunal has authority to decide on the dispute. The parties’ choice of law also affects how the tribunal interprets their agreement and applies legal principles.
For example, the New York Convention requires that foreign arbitral awards be recognized and enforced based on the substantive law agreed upon by the parties.
Interim Relief:
The procedural law of the seat of arbitration often determines whether interim relief can be granted during the arbitration. For instance, the Indian Arbitration Act, 1996 allows courts to grant interim relief under Section 9, but this may not apply if the seat of arbitration is in another country.
Enforcement of the Award:
The governing law is important for the enforcement of arbitral awards. If the award is made in one country, the recognition and enforcement in another country depend on whether the country where enforcement is sought is a signatory to international treaties like the New York Convention.
If the seat of arbitration is in India, the Indian courts will typically follow Indian law in enforcing an arbitral award. If the seat is in Singapore, the award will be enforced under Singaporean law and may also be subject to the New York Convention.
Examples
Example 1: Procedural Law and Substantive Law in a Construction Dispute
Two companies, one in the U.S. and the other in India, sign a construction contract where Indian law is specified as the substantive law for the contract. The parties agree to resolve any disputes in arbitration, seated in Singapore under the Singapore International Arbitration Centre (SIAC) rules.
In this case, Indian law will govern the substance of the dispute (whether there was a breach of contract, and the remedies available). However, the arbitration procedure will follow Singaporean law, as that is the seat of arbitration.
Example 2: Arbitration Under ICC Rules with English Law
A dispute arises between a German company and a Japanese company regarding a contract that specifies the use of English law to govern the contract. The arbitration is to take place under the rules of the International Chamber of Commerce (ICC) with the seat in Paris.
In this case, the procedural law will be French law (due to the seat in Paris), but the substantive law will be English law (because that governs the contract). The enforcement of the award can take place under the New York Convention, which is recognized globally.
Conclusion
The governing law in arbitration is a critical factor in determining how the arbitration will proceed, which laws apply to the dispute, and how the award will be enforced. It consists of two main components: the procedural law (law of the arbitration) and the substantive law (law governing the contract or dispute). The choice of law impacts everything from jurisdiction to the validity of the arbitration agreement and the enforcement of the award, making it a fundamental decision in arbitration agreements.
