What law governs an arbitration agreement? - The choice of the Proper Law of an arbitration agreement

Tue 10 November 2020

By Jayne He


The recent decisions of Enka v Chubb Russia ("Enka"), and Kabab-Ji SAL (Lebanon) v Kout Food Group (Kuwait) ("Kabab-Ji") have evoked discussions over the question of determining the proper law of an arbitration agreement ("AA Law"). 

On 4 November 2020, UNSW Law’s Herbert Smith Freehills China International Business and Economic Law (CIBEL) Centre member Associate Professor Kun Fan was invited to take part into the panel discussion on “Who's Law is it Anyways – What Law Governs an Arbitration Agreement?” remotely at the Fourteenth Annual Generations in Arbitration Conference hosted by the Moot Alumni Association as part of the 2020 Hong Kong Legal Week

The panel discussed on the different approaches adopted by different jurisdictions to determine the law governing the arbitration agreement, including the positions taken in England, Singapore, Hong Kong, China and France. 

Associate Professor Fan introduced the civil law approaches, in particular in light of the different decisions rendered by the English court and French court in the Kabab-Ji case. She pointed out that in the Kabab-Ji case, contrary to the decision of the English Court of Appeal, the Paris Court of Appeal held that in the absence of such express choice, the proper law of the arbitration agreement was French law as the law of the arbitral seat. In so concluding, the Paris Court of Appeal applied the well-known French approach recognising the full autonomy of the arbitration agreement, according to which the arbitration clause is legally independent from the underlying contract, and its existence and validity are interpreted, subject to the mandatory rules of French law and international public policy, “according to the common will of the parties, without the need to refer to any national law.”

She also introduced the Chinese approach, which is set out in the Law of the PRC on Choice of Law for Foreign-related Civil Relationship, providing that in the absence of the parties’ express choice, the applicable law to the arbitration agreement should be the law of the seat (or the law at the place of arbitration institution). She also discussed the BNA v BNB case, in which following the Singapore Court Appeal’s decision that the natural meaning of the phrase “arbitration in Shanghai” was the seat of arbitration, the Shanghai First Intermediate People’s Court (IPC) also decided that the seat of arbitration was Shanghai and applied to PRC law to determine the validity of the arbitration agreement. The court also held the arbitration agreement to be valid under the PRC law, confirming the validity of arbitration agreement designating foreign arbitration institutions in China, following the SPC’s decision in Longlide (2013).

The panel had very in-depth discussions and debates over the different approaches. On the scope of the doctrine of separability, Associate Professor Fan advocated for the French approach, which gave full autonomy of the doctrine of separability and treated the arbitration agreement as legally independent from the main contract. Applying a full autonomy of the separability principle, the arbitration agreement could be autonomous from any domestic law, and are subject only to general principles of international law. She believes that this approach goes in line with the third representation advocated by Professor Emmanuel Gaillard, according to which the source of validity and legitimacy of the arbitral process is not based on a national legal system, but on an autonomous arbitral legal order. 

On determining the law applicable to decide the proper AA law, she argued that the transnational rules approach taken by the French courts avoided the necessity to apply the conflict of law rules (which could lead to inconsistent decisions), and determined the existence and validity of the arbitration agreement based solely on the common intention of the parties and limits of public policy. “I think a transnational approach gives effect to the parties’ intentions and the pro-enforcement objectives of the New York Convention (“NYC”) and Model Law, and is more consistent with the international character of arbitration” Associate Professor Fan said at the conference.

Other speakers of the conference include James Ding, Helena Chen, Nathaniel Lai, Sherlin Tung, Brianna Young, Alex Ye, Jun Bautista, Ian Li, Xia Li, Eliza Jiang, Peter Bird, Zoe Dong, Joanne Lau, Zach Li, Innhwa Kwon, Ara Cho, Lars Markert, Sarah Thomas, and Mattew Townsend. The Honourable Ms Teresa Cheng, Secretary for Justice, Hong Kong SAR Government gave closing remarks. 

The recording of the conference is available here